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Risk, return and cash flow characteristics of infrastructure fund investments

Author

Listed:
  • 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.

Suggested Citation

  • Bitsch, Florian & Buchner, Axel & Kaserer, Christoph, 2010. "Risk, return and cash flow characteristics of infrastructure fund investments," EIB Papers 4/2010, European Investment Bank, Economics Department.
    • Handle: RePEc:ris:eibpap:2010_004
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    References listed on IDEAS

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    1. Valila, Timo & Mehrotra, Aaron, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports 2005/1, European Investment Bank, Economics Department.
    2. Douglas Sutherland & Sonia Araujo & Balázs Égert & Tomasz Koźluk, 2009. "Infrastructure Investment: Links to Growth and the Role of Public Policies," OECD Economics Department Working Papers 686, OECD Publishing.
    3. Fidrmuc, Jan, 2001. "Democracy in transition economies: Grease or sand in the wheels of growth?," ZEI Working Papers B 09-2001, University of Bonn, ZEI - Center for European Integration Studies.
    4. Ferreira, Luisa & Vanhoudt, Patrick, 2002. "Catching The Celtic Tiger By Its Tail," Economic and Financial Reports 2002/1, European Investment Bank, Economics Department.
    5. Philippe Martin, 1999. "Are European regional policies delivering?," Sciences Po publications info:hdl:2441/9343, Sciences Po.
    6. Rossi, Alessandro & Canpolongo, Francesca & Bichisao, Guido, 2002. "Hedge Accounting Within Ias 39," Economic and Financial Reports 2002/2, European Investment Bank, Economics Department.
    7. Hurst, Christopher & Uppenberg, Kristian, 2000. "Investment Issues In South-Eastern Europe," Economic and Financial Reports 2000/2, European Investment Bank, Economics Department.
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    Citations

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    Cited by:

    1. Abraham Park & Chen Yu Chang, 2013. "Impacts of Construction Events on the Project Equity Value of the Channel Tunnel Project," ERES eres2013_97, European Real Estate Society (ERES).
    2. Ben Ammar, Semir & Eling, Martin, 2013. "Common Risk Factors of Infrastructure Firms," Working Papers on Finance 1307, University of St. Gallen, School of Finance.
    3. Daniel Wurstbauer & Wolfgang Schäfers, 2015. "Inflation hedging and protection characteristics of infrastructure and real estate assets," Journal of Property Investment & Finance, Emerald Group Publishing, vol. 33(1), pages 19-44, February.
    4. repec:pal:gpprii:v:42:y:2017:i:4:d:10.1057_s41288-017-0042-7 is not listed on IDEAS
    5. Evgenios Tassopoulos & Sotirios Theodoropoulos, 2013. "Feasibility of the Development of Cruise Terminal in Lavrio Port under Concession Scheme," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 3-16.
    6. Nadine Gatzert & Thomas Kosub, 2014. "Insurers’ Investment in Infrastructure: Overview and Treatment under Solvency II," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(2), pages 351-372, April.
    7. Ben Ammar, Semir & Eling, Martin, 2015. "Common risk factors of infrastructure investments," Energy Economics, Elsevier, vol. 49(C), pages 257-273.
    8. 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.
    9. Evgenios Tassopoulos & Sotirios Theodoropoulos, 2014. "Residual Value and its Importance in Concession Agreements for Infrastructure Problems," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 32-40.
    10. Leviäkangas, Pekka Juhani & Nokkala, Marko Juha Mikael & Talvitie, Antti Petri, 2015. "A slice or the whole cake? Network ownership, governance and public–private partnerships in Finland," Research in Transportation Economics, Elsevier, vol. 49(C), pages 2-13.
    11. Wouter Thierie & Lieven Moor, 2016. "The characteristics of infrastructure as an investment class," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 277-297, August.
    12. Diana Dwi Astuti, 2017. "External and Internal Factors Influence to the Return on Equity and Risk Investment in Jakarta Islamic Index (JII)," GATR Journals jmmr162, Global Academy of Training and Research (GATR) Enterprise.
    13. Ron Bird & Harry Liem & Susan Thorp, 2011. "Infrastructure: Real Assets and Real Returns," Working Paper Series 11, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
    14. Bitsch, Florian, 2012. "Do investors value cash flow stability of listed infrastructure funds?," CEFS Working Paper Series 2012-01, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    15. repec:bla:growch:v:47:y:2016:i:4:p:520-534 is not listed on IDEAS

    More about this item

    Keywords

    Infrastructure investment; Private equity;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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