Infrastructure Performance: Does Specialization Matter? – June 2015

by Claire McNeil

  • 19 Jun 2015
  • INF

Infrastructure investment is typically favoured for its long-term nature and relatively safe yield, although recently, questions have been raised regarding its usefulness as an alternative to low-yield bonds of similar maturity. If an investor is targeting unlisted infrastructure funds, is it more beneficial to invest in industry-diversified infrastructure funds or industry-specific funds? 

Preqin’s Performance Analyst ranks funds in quartiles by placing an equal weighting upon the rank within the fund’s peer group of its multiple and IRR, and ranking this average. First-quartile funds are the best performers within the ranking group and fourth-quartile funds are the worst performers. 

Looking at the quartile composition of the industry-specific fund group (defined as focusing on two or fewer industries) compared with that of diversified funds suggests that a specific industry focus may give infrastructure fund managers an edge in terms of performance. While there is approximately the same proportion of funds in the third and fourth quartiles for both types of fund, a larger proportion of top-quartile infrastructure funds have a specific industry focus than do not; 38% of sector-specific funds are in the top quartile compared to 25% for generalist infrastructure funds. 

If this difference was attributed to greater risk from a more focused strategy that lacks diversification, then we would expect to see a larger proportion of funds in the bottom quartile; however, this is not the case, and factors aside from increased risk are at play in achieving a higher yield, specialization among them.

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