Unlisted infrastructure as an asset class : from the perspective of private investors and governments in the developed world.

Abstract

Adam Smith put it quite brilliant several centuries ago in the midst of the industrial revolution across Western Europe and North America. Moving goods and people and distributing electricity and energy between countries and cities, along coastlines and across oceans, all share one common need: High quality infrastructure. Investing in assets enabling improvements to such activities has been among the most important drivers to economic and societal development since the dawn of the industrial revolution. The fact is that infrastructure investment levels have fallen. The quality of infrastructure in countries, which once were pioneers of the industrial revolution, have declined. Concerns among academics and governments on the capability of meeting future infrastructure demands are growing. Today, the public sector lags behind due to difficult times; low growth rates and increasing liabilities have been witnessed after the financial crisis. Private capital have recently found investment opportunities in infrastructure, relieving some of the government’s responsibility. The main purpose of this thesis is to look at the attractiveness of unlisted infrastructure investments as an asset class, and the role of private capital in solving the infrastructure investment gap in the western developed world, with primary focus from the perspective of both private investors and governments. For private investors, infrastructure as an asset class is highly interesting. Industry experts and academics are promising stable cash flows, long asset lives and great diversification benefits - among other factors. Are investors likely to find the pot of gold at the rainbow’s end, or are current promises deceptive? Writing this thesis has been interesting, educational and at times frustrating. We would like to thank Jonas Osland in Gabler and our supervisor Kyeong Hun Lee at the Norwegian School of Economics for meaningful inputs and suggestions. Special mentions to Mark Lewitt and Erik Einset of Global Infrastructure Partners for taking their time in conference calls, William G. Reinhardt of Public Works Financing for providing us with his database, Professor John Howard Foote at Cornell University, Frédéric Blanc-Brude of the EDHEC Infrastructure Institute and ourselves.