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Risk/Return of Unlisted Infrastructure Funds vs. Private Equity – September 2015

by Ciantelle Lawrence

  • 23 Sep 2015
  • PE
  • INF

In addition to diversification benefits, infrastructure can provide relatively stable returns, as well as downside risk protection from the asset class’s inflation-hedging attributes. Using fund-level net IRR data from Preqin’s Performance Analyst and Infrastructure Online, this blog provides insight into the risk/return profile of the infrastructure and private equity asset classes.

While most investors target infrastructure for reliable cash flows, rather than outsized returns, the chart above shows that infrastructure funds with vintages 2004, 2005, 2006 and 2011 outperformed those of other private equity fund strategies, with the 2004 and 2011 vintages surpassing the median net IRR of other private equity strategies by 5.8 and 4.4 percentage points respectively. Barring 2011, infrastructure funds of more recent vintages have underperformed private equity, as might be expected given the differing risk/return profile.

Using the standard deviation of net IRRs as a measure of risk reveals the lower risk associated with infrastructure when compared with private equity, particularly in more recent vintage years. For vintages 2010, 2011 and 2012, the standard deviation of net IRRs for infrastructure funds are 11.9%, 9.3% and 10.7% respectively, while private equity funds are 13.9%, 15.0% and 18.6% for those vintages. However, it is important to note that these funds are early on in their lifespan, so the net IRRs are likely to change as the funds progress.

 

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