Weekend Reading

Ashby Monk

Given that I posted a new working paper this week on the “new era of infrastructure investing”, I thought I’d use this edition of ‘weekend reading’ to further elucidate some of the issues surrounding sovereign fund investments in this fascinating asset class (…and, clearly, to sneak in another plug for my latest research…). And with this in mind, I found three recent papers that are well worth a read:

1) Kristian Uppenberg, Hubert Strauss and Rien Wagenvoort have produced a thorough review of a recent EIB Conference on “Financing Infrastructure.” It serves as a really useful background paper for anybody interested in the topic.

2) Christian Kingombe over at ODI has a short working paper entitled “Mapping the new infrastructure financing landscape.” He notes that SWFs’ current exposure to these types of alternative assets is expected to rise from 10% all the way to 17% in the near future.

3) Graeme Newell, Hsu Wen Peng and Anthony De Francesco published a paper earlier this year entitled “The performance of unlisted infrastructure in investment portfolios.” This is a really useful paper, as it offers interesting insights into how different types of infrastructure assets perform.  Because you need a login (or a credit card) to access, here’s a blurb:

“Unlisted infrastructure funds have taken on increased importance in recent years with institutional investors, as well as unlisted infrastructure becoming a key asset class for pension funds and sovereign wealth funds. This paper assesses the significance and performance of unlisted infrastructure in Australia over Q3:1995–Q2:2009 by utilising a unique unlisted infrastructure performance series. Unlisted infrastructure is seen to be a strongly performed asset class on a risk adjusted basis, as well as providing significant portfolio diversification benefits and displaying different investment characteristics to listed infrastructure. Unlisted infrastructure performance was seen to be robust during the global financial crisis (GFC) for both risk-adjusted performance and portfolio diversification benefits; particularly in comparison with listed infrastructure and the other listed assets. Issues regarding the future strategic development of unlisted infrastructure as an effective asset class are also identified. The performance attributes of unlisted infrastructure were seen to be superior to listed infrastructure and direct property, with the benefits of unlisted infrastructure as an asset class further reinforced during the GFC. This has demonstrated the articulation of clear differences in the investment characteristics for both unlisted infrastructure and listed infrastructure.”

And here’s the main finding:

“Importantly, this research has empirically validated the value-added contribution of unlisted infrastructure in an Australian mixed-asset portfolio; particularly when this asset class was stress-tested during the GFC. The contribution to the body of knowledge sees the validation of unlisted infrastructure as an important and viable asset class in Australia for institutional investors and pension funds, which have significantly increased their unlisted infrastructure exposure in recent years. This research has also enabled more informed and practical investment decision-making by institutional investors regarding the significance and role of unlisted infrastructure in a portfolio; particularly given the strong links between effective infrastructure, economic performance and effective commercial property markets.”

Have a nice weekend!

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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