Get access

Infrastructure: Real Assets and Real Returns


  • The authors wish to acknowledge the generous support of the Paul Woolley Centre at the University of Technology, Sydney (UTS). In addition, Thorp acknowledges Australian Research Council (ARC) DP 0877219. The Chair of Finance and Superannuation at UTS receives support from the Sydney Financial Forum (Colonial First State Global Asset Management), the NSW Government, the Association of Superannuation Funds of Australia (ASFA), the Industry Superannuation Network (ISN), and the Paul Woolley Centre, UTS. The authors also wish to thank John Doukas, two anonymous referees, and attendees at the 2011 Paul Woolley Conference in Sydney for their valuable comments and suggestions.


Little empirical work has been done on infrastructure as an asset class despite increased allocations by institutional investors. We build a robust factor model of infrastructure returns using US and Australian infrastructure and utility data to test manager claims that infrastructure investments offer benefits via a combination of monopolistic and defensive assets. We find evidence of excess returns and inflation hedging, but not of defensive characteristics. We compare option-based models designed to replicate infrastructure asset returns, and identify the regulatory risk premium. A combination of inflation linked bonds and covered call strategies results in improved defensive and inflation hedging characteristics.