Institutional Investors and Infrastructure Investing

Institutional investors expect infrastructure to deliver long-term stable returns but gain exposure to infrastructure predominantly through finite-horizon closed private funds. The cash flows delivered by infrastructure funds display similar volatility and cyclicality as other private equity investments, and their performance depends similarly on quick deal exits. Despite weak risk-adjusted performance and failure to match the supposed characteristics of infrastructure assets, closed funds have received more commitments over time, particularly from public investors. Public institutional investors perform worse than private institutional investors, and ESG preferences and regulations explain 25-40% of their increased allocation to infrastructure and 30% of their underperformance.

Keywords: Infrastructure, Public Pension Funds, Institutional Investors, ESG regulation

JEL Classification: G11, G23, G28, H54, H75

Suggested Citation: Suggested Citation

Andonov, Aleksandar and Kraeussl, Roman and Rauh, Joshua D., Institutional Investors and Infrastructure Investing (March 2021). Stanford University Graduate School of Business Research Paper No. 18-42, Available at SSRN: https://ssrn.com/abstract=3245543 or http://dx.doi.org/10.2139/ssrn.3245543