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The Subsidy to Infrastructure as an Asset Class

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  • Andonov, Aleksandar

    (University of Amsterdam)

  • Kraussl, Roman

    (Luxembourg School of Finance)

  • Rauh, Joshua D.

    (Stanford University, Hoover Institution, and NBER)

Abstract

We investigate the characteristics of infrastructure as an asset class from an investment perspective of a limited partner. While non U.S. institutional investors gain exposure to infrastructure assets through a mix of direct investments and private fund vehicles, U.S. investors predominantly invest in infrastructure through private funds. We find that the stream of cash flows delivered by private infrastructure funds to institutional investors is very similar to that delivered by other types of private equity, as reflected by the frequency and amounts of net cash flows. U.S. public pension funds perform worse than other institutional investors in their infrastructure fund investments, although they are exposed to underlying deals with very similar project stage, concession terms, ownership structure, industry, and geographical location. By selecting funds that invest in projects with poor financial performance, U.S. public pension funds have created an implicit subsidy to infrastructure as an asset class, which we estimate within the range of $730 million to $3.16 billion per year depending on the benchmark.

Suggested Citation

  • Andonov, Aleksandar & Kraussl, Roman & Rauh, Joshua D., 2018. "The Subsidy to Infrastructure as an Asset Class," Research Papers 3737, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:3737
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    Cited by:

    1. Edward L. Glaeser & James M. Poterba, 2020. "Economic Analysis and Infrastructure Investment," NBER Working Papers 28215, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare

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