2015 EDHEC/GIF Masterclass

EDHEC Infrastructure Institute Infrastructure Investment Masterclass

Privately-held equity and debt infrastructure investments for long-term investors

The first EDHEC/GIF Masterclass on infrastructure equity and debt investment was held for 50 the participating staff of the GIF members organisations on 21st of October 2015 in Singapore.

The one-day event includes several lectures on the fundamentals of infrastructure investing, asset pricing and risk measurement, as well as detailed case study analyses and interactive work sessions during which participants are asked to address some of the practical challenges encountered by infrastructure investors, regulators and investment managers.

EDHEC Infrastructure Institute Infrastructure Investment Masterclass

Privately-held equity and debt infrastructure investments for long-term investors

Morning session

A. Investment beliefs (90m)
In this session, students will learn to formulate and update investment beliefs about privately-held infrastructure equity and debt investments, drawing from the financial economics of regulated utilities and project financing as well as agency and contract theory. They will learn about the risk factors that systematically drive cash flow volatility and the cost of capital in infrastructure projects and how infrastructure investments should be framed in the broader context of a long-term investor’s strategic asset allocation.
1. The infrastructure investment narrative
2. Understanding the nature of investable infrastructure assets
3. A framework for updating long-term investment beliefs

Short break

B. Infrastructure project debt benchmarking and performance measurement (90m)
In this session, students are introduced to the first fully-fledged structural credit risk approach to infrastructure project debt, allowing the derivation of valuation, performance and extreme risk measures. This model is then calibrated using EDHEC’s unique database of infrastructure project debt cash flows, spanning hundreds of projects over the past two decades, and implemented in the context of a case study.
1. Valuation framework: a Merton model of project finance senior debt
2. Empirical evidence: predicting defaults, losses and value-at-risk
3. Case study

Lunch break

Afternoon session

C. Infrastructure project equity benchmarking and performance measurement (90m)
In this session, students learn how to derive implied market prices from actual equity transactions in infrastructure projects given a model of future dividends (and dividend volatility) calibrated using EDHEC’s databases of dividend cash flows going back twenty years. This approach is implemented using a project equity portfolio case study.
1. Valuation framework: the implied term-structure of discount rates
2. Empirical evidence: dividend distributions, volatilities and correlations
3. Case study

D. Access and delegation models (90m)
This session gives students an overview of the key issues encountered when building portfolios of highly illiquid assets like infrastructure equity and debt and discusses the implications for benchmark construction and investment solution design. It also discusses the current state of the market for infrastructure investment delegation from the standard infrastructure PE funds to new long-term investment vehicles with a focus on achieving investment objectives such as duration.
1. Portfolio construction with illiquid infrastructure assets
2. Infrastructure investment delegation: market failure
3. Future development of investment delegation models