Working Paper: NBER ID: w25045
Authors: Aleksandar Andonov; Roman Krussl; Joshua Rauh
Abstract: We investigate the characteristics of infrastructure as an asset class from an investment perspective of a limited partner. While non U.S. institutional investors gain exposure to infrastructure assets through a mix of direct investments and private fund vehicles, U.S. investors predominantly invest in infrastructure through private funds. We find that the stream of cash flows delivered by private infrastructure funds to institutional investors is very similar to that delivered by other types of private equity, as reflected by the frequency and amounts of net cash flows. U.S. public pension funds perform worse than other institutional investors in their infrastructure fund investments, although they are exposed to underlying deals with very similar project stage, concession terms, ownership structure, industry, and geographical location. By selecting funds that invest in projects with poor financial performance, U.S. public pension funds have created an implicit subsidy to infrastructure as an asset class, which we estimate within the range of $730 million to $3.16 billion per year depending on the benchmark.
Keywords: infrastructure; asset class; public pension funds; investment performance
JEL Codes: G11; G23; G28; H54; H75
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US public pension funds (H55) | lower probability of exiting infrastructure deals (R53) |
| US public pension funds (H55) | lower net internal rates of return (IRR) (G19) |
| US public pension funds (H55) | lower multiples of invested capital (G31) |
| US public pension funds (H55) | lower funding status of promised benefits for pension plan members (H55) |
| US public pension funds (H55) | implicit subsidy (H23) |