DP15946 Institutional Investors and Infrastructure Investing

Author(s): Aleksandar Andonov, Roman Kräussl, Joshua Rauh
Publication Date: March 2021
Keyword(s): ESG regulation, infrastructure, institutional investors, Public pension funds
JEL(s): G11, G23, G28, H54, H75
Programme Areas: Public Economics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15946

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.