Performance and Persistence in Private Infrastructure Funds
28 Pages Posted: 8 Dec 2019
Date Written: November 21, 2019
Private infrastructure funds have contributed to about 10% of global infrastructure investment in the last decade, managing $483 bn assets at the end of October 2019 according to Preqin. Given the marked expansion in private funds investing in infrastructure, this paper undertakes a detailed analysis of the key performance drivers. We use fund-level cash flow data to construct various investment performance measures including the internal rate of return (IRR), the public market equivalent (PME) and the total value to paid-in (TVPI). The results show that returns persist strongly within private infrastructure, yet the performance persistence effect weakens with further successor funds which is similar to what has been observed in the wider PE fund industry. In addition, funds that focus on developed markets and invest in green field projects tend to outperform their industry peers. We also observe that the infrastructure private equity market tends to move in tandem with the wider capital market over time in terms of performance. Lastly, the annual IRR seems to be a poor predictor of performance within the unlisted infrastructure fund industry in terms of coefficient of determination. On the other hand, annual PME increases cash flow predictability and affords for a more reliable performance indicator.
Keywords: Private infrastructure funds, performance, persistence, internal rate of return, public market equivalent
JEL Classification: E44
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