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This study employs an asset pricing approach to examine whether infrastructure investments are an asset class in their own right. By employing the Merton zero-criterion approach, we demonstrate that global and national listed infrastructure returns cannot be deemed as a separate asset class. Empirical evidence suggests that listed infrastructure returns are simply a subset of listed stocks with significant industry exposure to the utility sector. These findings have important implications for the asset allocation decisions of pension and superannuation funds.

Over the past decade, pension and superannuation funds have developed a growing interest in infrastructure-related investments. A 2013 OECD survey on pension funds’ long-term investments indicates that large pension funds hold an average asset allocation of 15.6 per cent to alternative asset classes, such as infrastructure and private equity. The rising interest in these types of assets has seen a number of studies suggest that infrastructure investments are an asset class in their own right. Other researchers argue that infrastructure investments are simply a subsector within current asset classes such as stocks, bonds, private equities and real estate. There is a paucity of finance theory employed in the literature to address this issue.

This study extends the literature by taking an asset pricing approach to examine whether infrastructure is indeed an asset class. The question posed in this study has important implications for portfolio management and long-term investors such as pension and superannuation funds.

If infrastructure assets offer superior risk-adjusted returns over and above other asset classes (such as stocks, bonds, real estate and cash) then these investments will become the dominant asset class going forward. Conversely, if infrastructure assets do not exhibit return, risk and correlation characteristics which are distinguishable from other asset classes then arguably they may be classified as investment substitutes for current investments and cannot be deemed to be a separate asset class.

This study examines global infrastructure index returns and country returns by taking an asset pricing approach to uncover the systematic risk factors and industry exposures that explain the returns of these types of investments.

Infrastructure is seen as a separate asset class due to the unique investment characteristics such as their long-life assets, regular income streams, low competitive market structure, regulatory regimes and high barriers to entry. While these financial and economic characteristics are the attractive features of infrastructure assets, it is the capital growth of the equity and dividend distributions that is the ultimately earned by the investor.

Using a conventional global multi-factor asset-pricing model we demonstrate that the variation of returns of publicly listed global and regional infrastructure indices can be explained by exposures to market beta, large-cap returns, and exposure to the world utility industry sector. Furthermore, our empirical findings show that publicly listed infrastructure index returns do not exhibit an additional risk premium that cannot already be earned by investing in world stocks and stocks in the global utilities industry. Put simply, listed world infrastructure assets do not offer superior risk-adjusted returns over and above other asset classes such as a broad and diversified portfolio of world stocks.

The Merton zero-intercept criterion suggests that the returns of global infrastructure index returns can be replicated with the linear combination of world stocks and global utility industry stocks. The results of this study suggest that infrastructure does not exhibit sufficient differences in its return, risk and correlations to warrant classification as a separate asset class. Instead, listed infrastructure assets exhibit commonalities with global listed stocks and exposure to the global utilities industry.

These empirical findings raise new questions about the relationship between listed and unlisted infrastructure. Publicly listed infrastructure equity returns do not earn excess returns over what can be earned from world stocks. This means that the potential additional return from unlisted infrastructure returns is a function of one of the following risks: idiosyncratic risk; infrastructure asset selection (known as alpha); liquidity risk; equity valuation model risk; or a combination of these. We leave these issues as avenues for future research.


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This Working Paper was produced by the CSIRO-Monash Superannuation Research Cluster a collaboration between the CSIRO and Monash University, the University of Western Australia, Griffith University and the University of Warwick in the United Kingdom. In addition, the Cluster engages on an ongoing basis with a range of industry supporters, government agencies and industry peak bodies who assist in providing guidance and feedback to researchers, providing data, and in disseminating outcomes. The purpose of the Super Research Cluster is to examine issues pertaining to the future of Australia’s superannuation and retirement systems.