Infrastructure investments have received a lot of attention in the media recently. It seems that institutional investors and sovereign wealth funds are falling over themselves to own an airport, a railroad or a power grid. Often these investments are motivated by a belief that infrastructure investments are relatively safe investments. After all, people still need to use a toll-highway or power transmission system even in a recession, right?
But infrastructure requires a huge amount of fixed investment. And a huge amount of fixed investment usually means that investors take a bath when things go south. So is infrastructure really as "stable" as some assume?
This is the question posed by Christoph Rothballer and Christoph Kaserer of the Technical University of Munich in a recent study entitled Is Infrastructure really low risk? An Empirical Analysis of listed infrastructure firms. The duo laments the fact that "despite the growing market for private infrastructure investments the number of studies on the risk characteristics of this new alternative asset class remains limited." (our emphasis)
Thankfully, there may be a way to actually get to the bottom of this one. While most institutional direct investment in infrastructure is highly illiquid, there are a gaggle of publicly listed infrastructure firms that can serve as a pretty good proxy for infrastructure investments in general. Rothballer and Kaserer study these stocks and provide some interesting insight into the likely performance of illiquid infrastructure investments.
They define "infrastructure" in three ways: telecom, transportation and utilities, and then subdivide these categories into various other sub-categories listed below (created with data from Table 2 of the paper).
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