The Subsidy to Infrastructure as an Asset Class

47 Pages Posted: 24 Sep 2018

See all articles by Aleksandar Andonov

Aleksandar Andonov

University of Amsterdam

Roman Kräussl

Luxembourg School of Finance; Hoover Institution, Stanford University

Joshua D. Rauh

Stanford Graduate School of Business; Hoover Institution; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 6, 2018

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, Public Pension Funds, Institutional Investors

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

Suggested Citation

Andonov, Aleksandar and Kraeussl, Roman and Rauh, Joshua D., The Subsidy to Infrastructure as an Asset Class (September 6, 2018). 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

Aleksandar Andonov

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://www.aleksandarandonov.com

Roman Kraeussl

Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
Luxembourg
+3524666445442 (Phone)

HOME PAGE: http://www.art-finance.com

Hoover Institution, Stanford University ( email )

Stanford, CA 94305
United States

Joshua D. Rauh (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Hoover Institution ( email )

Stanford, CA 94305-6010
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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