Infrastructure: Real Assets and Real Returns

Ron Bird, Harry Liem and Susan Thorp

European Financial Management, 2014, vol. 20, issue 4, 802-824

Abstract: Little empirical work has been done on infrastructure as an asset class despite increased allocations by institutional investors. We build a robust factor model of infrastructure returns using US and Australian infrastructure and utility data to test manager claims that infrastructure investments offer benefits via a combination of monopolistic and defensive assets. We find evidence of excess returns and inflation hedging, but not of defensive characteristics. We compare option†based models designed to replicate infrastructure asset returns, and identify the regulatory risk premium. A combination of inflation linked bonds and covered call strategies results in improved defensive and inflation hedging characteristics.

Date: 2014
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