Performance Comparison: Infrastructure vs. Other Private Capital Strategies – April 2016

by Darren Fernandes

  • 20 Apr 2016
  • PE
  • VC
  • RE
  • INF

Despite its relatively recent emergence as a distinct asset class, infrastructure has established itself as an attractive alternative investment within institutional investors’ portfolios due to its comparatively stable returns and low correlation with other asset classes. Unlisted infrastructure industry assets under management reached $310bn as of June 2015, compared to $299bn the previous year, illustrating the growth of the market in recent years.

Utilizing Preqin’s Infrastructure Online, it is possible to analyze the performance of over 200 unlisted infrastructure funds in comparison with other private capital strategies. While the majority of these funds were launched post 2004, analysis of older vintages provides a useful insight into prospective returns until more recent funds reach maturity.

As seen in the chart above, infrastructure funds of vintage 2000-2005 have produced a median net IRR of 16.0%, outperforming buyout funds (+15.8%) and significantly outperforming private real estate (+8.9%) and venture capital funds (+2.4%) of the same vintages. Vintage 2006-2007 infrastructure funds have outperformed private real estate funds, with a median net IRR of 5.8% and 6.9% compared with 1.4% and 5.3%, respectively. 

In more recent fund vintages (2009-2013), unlisted infrastructure has underperformed in comparison to other private capital strategies. However, for 2013 vintage funds, infrastructure matches buyout performance with a median net IRR of 8.9% – an encouraging sign considering how early on in their investment cycles they are.

The strong performance of earlier vintage years shows that infrastructure vehicles can produce relatively high returns over the longer term, reflecting the longer investment horizons associated with the asset class. The relatively lower returns of more recent vintages, however, are typically expected given the lower risk/return profile of infrastructure funds – an aspect many investors will find favourable to offset higher risks associated with other asset classes.

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