The Rise of Infrastructure Funds: - A Case Study of Macquarie’s Arlanda Express Buyout

Abstract: Infrastructure funds raise money from primarily institutions for investments in infrastructure assets like toll roads and electricity. The focus of the paper is on five issues relating to infrastructure funds; fundraising trends, structure of funds, the components of the infrastructure transaction, the risk and return profile of infrastructure assets, and finally value creation in the portfolio companies. Infrastructure funds have been contrasted to other private equity investment classes, particularly buyout funds. This paper is motivated by the fact that almost no research has been conducted on infrastructure funds. The thesis concludes that there are both similarities and differences between infrastructure funds and traditional buyout funds. To some of the notable differences count; the way the infrastructure funds are structured raises new incentive issues between the general partner and limited partner, infrastructure assets have very special financial characteristics including low risk and low correlation to other major asset classes, and value creation in infrastructure buyouts has rather different features. Investors in infrastructure assets need to pay attention to that the relationship with the state is sensitive due to the nature of the assets providing vital services. In addition, the economics of infrastructure assets is different from the assets traditional buyout firms buy. To the special characteristics of operating infrastructure assets count; physical constraints, often limited prices and limited opportunities to affect the costs as most costs are construction costs.