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Risk, return and cash flow characteristics of infrastructure fund investments

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Author Info

  • Bitsch, Florian

    ()
    (Technische Universität München)

  • Buchner, Axel

    ()
    (Technische Universität München)

  • Kaserer, Christoph

    ()
    (Technische Universität München)

Abstract

We analyze the risk, return and cash flow characteristics of infrastructure investments by using a unique dataset of deals done by private equity-like investment funds. We show that infrastructure deals have a performance that is higher than that of non-infrastructure deals, despite the lower default frequencies. However, we do not find that infrastructure deals offer more stable cash flows. Our study offers some evidence in favour of the hypothesis that higher infrastructure returns could be driven by higher market risk. In fact, these investments appear to be highly levered and their returns are positively correlated to public-equity markets, but uncorrelated to GDP growth. Our results also indicate that returns could be influenced by the regulatory framework as well as by defective privatization mechanisms. By contrast, returns are neither linked to inflation nor subject to the "money chasing deals" phenomenon.

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Bibliographic Info

Paper provided by European Investment Bank, Economics Department in its series EIB Papers with number 4/2010.

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Length: 32 pages
Date of creation: 17 Dec 2010
Date of revision:
Handle: RePEc:ris:eibpap:2010_004

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Keywords: Infrastructure investment; Private equity;

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  1. Ferreira, Luisa & Vanhoudt, Patrick, 2002. "Catching The Celtic Tiger By Its Tail," Economic and Financial Reports, European Investment Bank, Economics Department 2002/1, European Investment Bank, Economics Department.
  2. Fidrmuc, Jan, 2001. "Democracy in transition economies: Grease or sand in the wheels of growth?," ZEI Working Papers B 09-2001, ZEI - Center for European Integration Studies, University of Bonn.
  3. Hurst, Christopher & Uppenberg, Kristian, 2000. "Investment Issues In South-Eastern Europe," Economic and Financial Reports, European Investment Bank, Economics Department 2000/2, European Investment Bank, Economics Department.
  4. Douglas Sutherland & Sonia Araujo & Balázs Égert & Tomasz Kozluk, 2009. "Infrastructure Investment: Links to Growth and the Role of Public Policies," OECD Economics Department Working Papers 686, OECD Publishing.
  5. Rossi, Alessandro & Canpolongo, Francesca & Bichisao, Guido, 2002. "Hedge Accounting Within Ias 39," Economic and Financial Reports, European Investment Bank, Economics Department 2002/2, European Investment Bank, Economics Department.
  6. Valila, Timo & Mehrotra, Aaron, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports, European Investment Bank, Economics Department 2005/1, European Investment Bank, Economics Department.
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Cited by:
  1. Bitsch, Florian, 2012. "Do investors value cash flow stability of listed infrastructure funds?," CEFS Working Paper Series 2012-01, Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München.
  2. Ben Ammar, Semir & Eling, Martin, 2013. "Common Risk Factors of Infrastructure Firms," Working Papers on Finance, University of St. Gallen, School of Finance 1307, University of St. Gallen, School of Finance.
  3. Pekka Leviakangas & Pekka Kess & Jaakko Kujala, 2013. "Investment Analysis in Public-Private-Partnership Projects: Any Common Ground for Public and Private Investors?," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress, ToKnowPress.
  4. Ron Bird & Harry Liem & Susan Thorp, 2011. "Infrastructure: Real Assets and Real Returns," Working Paper Series, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney 11, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.

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