Infrastructure: a new dimension of real estate? An asset allocation analysis
| Pages | 263-274 |
| DOI | https://doi.org/10.1108/14635781011058875 |
| Published date | 13 July 2010 |
| Date | 13 July 2010 |
| Author | Konrad Finkenzeller,Tobias Dechant,Wolfgang Schäfers |
| Subject Matter | Property management & built environment |
Infrastructure: a new dimension
of real estate? An asset allocation
analysis
Konrad Finkenzeller, Tobias Dechant and Wolfgang Scha
¨fers
IRE/BS Institute of Real Estate, University of Regensburg, Regensburg,
Germany
Abstract
Purpose – The purpose of this paper is to provide conclusive evidence that infrastructure constitutes
a separate asset class and cannot be classified as real estate from an investment point-of-view.
Furthermore, optimal allocations are determined for direct and indirect infrastructure within a
multi-asset portfolio.
Design/methodology/approach – Portfolio allocations are optimized by using an algorithm, which
accounts for downside risk, rather than variance. This approach is more in accordance with the actual
investor behaviour and might meet their investment objectives more effectively. An Australian
dataset comprising stocks, bonds, direct real estate, direct infrastructure and indirect infrastructure is
applied for portfolio construction.
Findings – Although infrastructure and real estate have common characteristics, the conclusion is
that that they constitute two different asset classes. Furthermore, the diversification benefits of direct
and indirect infrastructure within multi-asset portfolios are highlighted and determine efficient
allocations up to 78 percent for target rates of 0.0 percent, 1.5 percent and 3.0 percent quarterly.
Practical implications – The results will help investors and portfolio managers to efficiently
allocate funds to various asset classes. Most institutional investors are not familiar with investments
in infrastructure. The study facilitates a better understanding of the asset class infrastructure and
yields some important implications for the optimal allocation of infrastructure within institutional
investment portfolios.
Originality/value – This is the first study to examine the role of direct and indirect infrastructure
within a multi-asset portfolio by applying a downside-risk approach.
Keywords Structures,Real estate, Assets, Risk management,Australia
Paper type Research paper
1. Introduction
The economic importance of infrastructure has been the subject of extensive research
since the late 1980s and is free of controversy. The World Economic Forum (2008) lists
infrastructure as one of the most crucial elements to a country’s productivity and
competitiveness. Aschauer (1989) provides evidence of significant links between
investment in infrastructure and a country’s economic development and wealth.
Yeaple and Golub (2004) suggest that infrastructure is one of the key determinants of a
region’s comparative advantage. Though infrastructure is recognized as a crucial input
for economic productivity, there is no clear and unanimous definition of the term. An
early definition is given by Stohler (1964), who characterizes infrastructure as the
substructure or the “skeleton” assets of an economy that are essential for the
production of goods and services. Later approaches have subdivided infrastructure
The current issue and full text archive of this journal is available at
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Infrastructure:
a new
dimension?
263
Received January 2010
Accepted March 2010
Journal of Property Investment &
Finance
Vol. 28 No. 4, 2010
pp. 263-274
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635781011058875
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