Searching for a listed infrastructure asset class using mean–variance spanning

Abstract

This study examines the portfolio-diversification benefits of listed infrastructure stocks. We employ three different definitions of listed infrastructure and tests of mean-variance spanning. The evidence shows that viewing infrastructure as an asset class is misguided. We employ different schemes of infrastructure asset selection (both traditional asset classes and factor exposures) and discover that they do not provide portfolio-diversification benefits to existing asset allocation choices. We also find that defining and selecting infrastructure investments by business model as opposed to industrial sectors can reveal a very different investment profile, albeit one that improves the mean-variance efficient frontier since the global financial crisis. This study provides new insights into defining and benchmarking infrastructure equity investments in general, as well as into the extent to which public markets can be used to proxy the risk-adjusted performance of privately held infrastructure investments.

Listed Infrastructure Assets as a Tool for Diversification

“…The unlisted infrastructure assets are generally only available to institutional investors and such direct investment has many desired characteristics (Peng & Newell, 2007), (Finkenzeller et al, 2010), (Bitsch et al, 2010), (Blanc-Brude, 2013). The same is not with the listed infrastructure assets (Blanc-Brude et al, 2017), (Thierie & De Moor, 2016). Rather, the listed infrastructure assets resemble broad equities.…”

Evolution of infrastructure as an asset class: a systematic literature review and thematic analysis

“…The authors found that infrastructure acts more as a risk reducer than return enhancer in a multi-asset portfolio. In their seminal work, Blanc-Brude et al ( 2017 ) employ 22 proxies of infrastructure based on three different definitions identified from the literature in a comparative analysis using mean-variance spanning tests. The authors argue that infrastructure based on industry sector classification does not represent a separate asset class and is already spanned by existing capital market instruments.…”

“…We find rather contradictory evidence on whether infrastructure exhibits risk-return profile that it promises or is simply a part of traditional investment vehicles on which it comes. While some studies (Peng and Newell 2007 ; Newell et al 2011 ; Oyedele et al 2013 ) present evidence of strong risk-adjusted performance and portfolio diversification potential of infrastructure and suggest a separate allocation in institutional investors’ portfolios, others (Bond et al 2007 ; Blanc-Brude et al 2017 ) contradict and argue that listed infrastructure cannot be considered a separate asset class and is rather a subset of general equity. For instance, Dechant and Finkenzeller ( 2012a , 2012b ) could not find evidence of infrastructure being a good hedge against long-term pension liabilities, thus, defying a long held notion.…”

Infrastructure Equity and Firm Performance in India

“…The study by Blanc-Brude et al (2017) examines portfolio diversification benefits of listed infrastructure stocks. It uses three different definitions of mean–variance spanning and for listed infrastructure.…”