Performance Drivers in Private Infrastructure Funds

Abstract

Research on infrastructure as an asset class is still in its infancy due to the lack of data. Investors have approached the performance evaluation of infrastructure deals from the lens of either real estate or private equity. We use fund-level cash flow data to construct three performance metrics: the internal rate of return (IRR), the public market equivalent (PME) and the total value to paid-in capital (TVPI) and assess the performance drivers of private infrastructure funds. Our results highlight that private infrastructure funds exhibit a different performance pattern to mainstream private equity funds and to real estate private equity. Performance determinants such as fund size, investment style, fund specialisation, sector, location do not seem to explain the cross-section in performance indicators. All else equal, oversubscribed funds deliver a worse performance. Results for persistence across follow-on funds are inconclusive and we find mild momentum effects. Our results have implications for investors in real assets and less transparent markets. Overall, the private infrastructure fund sector is still in its infancy and conventional wisdom from general private equity or real estate research may not yet apply to infrastructure funds.

Keywords: Private infrastructure funds, performance, persistence, internal rate of return, public market equivalent.

JEL Classification: G24