The Subsidy to Infrastructure as an Asset Class
Aleksander Andonov, Roman Kaussel, Joshua D. Ruah
Institutional investors expect infrastructure assets to deliver long-term stable returns, but they gain exposure to infrastructure predominantly through closed, finite-horizon private funds. The cash flows delivered by infrastructure funds display similar volatility and cyclicality to those of other private equity funds. Their performance depends primarily on deal exits. Public investors, such as public pension funds and sovereign wealth funds, perform worse than private investors, despite being exposed to underlying deals with similar characteristics. By selecting underperforming funds and increasing their commitments, public investors have created an implicit subsidy of over $2 billion per year to infrastructure as an asset class.
