EDHEC Research Insights 2018

Building benchmarks for infrastructure investors

Investors hit a roadblock when investing in infrastructure. Until now none of the metrics needed by investors were documented in a robust manner, if at all, for privately held infrastructure equity or debt. This has left investors frustrated and wary. In a 2016 EDHECinfra/Global Infrastructure Hub Survey of major asset owners, more than half declared that they did not trust the valuations reported by infrastructure asset managers.

How, under such conditions, can the vast increases in long-term investment in infrastructure by institutional players take place? We need transparency and accurate performance measures.

This is the year of the Argentinian presidency of the G20 and it has been marked by a focus on infrastructure investment. With the support of the G20, the Singapore government, The Long-Term Infrastructure Investors Association, the Long-Term Investment Club and numerous private sector supporters, EDHECinfra has now built the largest database of infrastructure investment data in the world. With this we can now bring transparency and accurate performance measures to the infrastructure sector.

Using this data EDHECinfra has created performance benchmarks that are needed for asset allocation, prudential regulation and the design of infrastructure investment solutions. These first of a kind benchmarks provide investment metrics that are needed by investors; return, volatility, Sharpe ratio, duration, and maximum drawdown.

In 2019, this database will reach global coverage and a global index for private infrastructure debt and equity tracking 1000 firms can be published.

We started our journey to build benchmarks for infrastructure investors in Europe, the oldest and largest investible market for infrastructure in the world. We analysed the European market and selected the 14 major markets for infrastructure. We studied the size, age and evolution of the infrastructure industry in each of those countries, and painstakingly identified all investible infrastructure assets.
We then selected a list of 400 firms to represent the European infrastructure market by sector, business model or country, all the while covering 50% of the market by size in each year, ensuring a representative sample through time. This became the constituent list for the benchmarks. For each firm we collected data for realised and forecast cash flow to debt and equity holders. Firms were categorised by type (either as infrastructure project or infrastructure corporate) and by business model (contracted, merchant and regulated).

This project was undertaken in coordination and collaboration with the industry. Data was submitted by banks, asset owners and managers. This collaboration is a sign that the private infrastructure industry is growing towards a more mature and transparent stage in its development. The support of private investors and lenders to this initiative is impressive and deserves to be praised.

In this context, EDHECinfra has also developed data collection and reporting standards that can be used to make data collection more efficient and reporting more transparent. This methodology provides a framework for data collection for the long-term financing of infrastructure.

Today, the first generation of benchmarks give us estimates of financial performance and risks of reference portfolios of privately held infrastructure investments. This will help answer asset allocation, prudential and performance monitoring questions and improve transparency and efficiency of investment in infrastructure around the world.

Contents:

  • Establishing an industry standard for the infrastructure asset class – Sarah Tame
  • A survey of investor preferences for the segmentation of private infrastructure – Sarah Tame
  • Infrastructure investment in emerging markets: Narrowing the “data gap” – Sharyn Chang, Silvia Garcia, Sarah Tame, Christy Tran, Jing-Li Yim
  • The Rise of “Fake Infra” – Noël Amenc, Frédéric Blanc-Brude, Aurelie Chreng, Christy Tran
  • Credit risk in private infrastructure debt – Frederic Blanc-Brude, Majid Hasan and Timothy Whittaker
  • Revealing investors’ return preferences – Frederic Blanc-Brude, Timothy Whittaker, Jing-Li Yim
  • Take the next exit: A case study of road investments gone wrong, Spain 1998-2018 – Frederic Blanc-Brude, Silvia Garcia, Sarah Tame, Timothy Whittaker
  • Three routes to maximizing infrastructure finance for development – Frederic Blanc-Brude

Download PDF