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Risk, return and cash flow characteristics of infrastructure fund investments

Author

Listed:
  • Florian Bitsch

    (Technische Universität München)

  • Axel Buchner

    (Technische Universität München)

  • Christoph Kaserer

    (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

  • Florian Bitsch & Axel Buchner & Christoph Kaserer, 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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    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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