#fakeInfra and the future of real asset investing

#fakeInfra and future of real asset investing

As we get ready to release 384 indices of private infrastructure equity and debt investments in just a few weeks, EDHECinfra Director, Frederic Blanc-Brude, hopes that these results will help dissipate the confusion created by #fakeInfra.

Almost every day, asset owners are presented with new opportunities to invest in “infrastructure.” The appeal is always the same: yield, stability, a degree of portfolio diversification, perhaps even inflation hedging.

But this label has been stuck on more than one tin. And a serving of infrastructure can now come in many forms: from private equity funds with various horizons and mandates, to ETFs and other funds of publicly traded equities, to green bonds or infrastructure REITS.

Thus, many investment products may have a new “infrastructure” look but it is possible that some of them have nothing new or special to offer… it’s just repackaging or confusing packaging.

“Listed infrastructure” is a case in point, as our recent study of the (absence of) unique characteristics of 22 listed infrastructure proxies is published in a peer-reviewed journal, we are also releasing a short video highlighting its key findings (see it here): there is no such thing as a “listed infrastructure asset class.”

This study highlights the importance of discussing the existence of new ‘asset classes’ in a total portfolio context whether they are built by broad asset classes of assets or by risk factors. Using mechanical stock filters or industry-provided thematic indices, we conduct 176 mean-variance spanning tests both pre- and post-GFC in global, US and UK markets, and find zero evidence that focusing on ‘listed infrastructure’ creates any new and persistent diversification benefits for already well-diversified investors.

“Listed infrastructure” is #fakeInfra.

A listed infrastructure fund (…) is an alpha-driven product offering, often mislabelled as new form of beta.

It is presented to investors as an opportunity to gain exposure to something new or rare, but has really always been available, that is, it is already ‘spanned’ by existing capital market and other instruments.

#fakeInfra is relying on the flexible definition of real world “infrastructure” to invest in businesses which may be related to the ‘monopoly provision of essential services’ but do not necessarily need a new label: what matters to investors is to achieve their objectives at the relevant horizon, not to own companies from a particular sector of the economy.

Hence, a listed infrastructure fund is just a an active equity fund with a narrow industrial focus. It is an alpha-driven product offering, often mislabelled as new form of beta.

It is not what investors need to better understand the potential role of infrastructure and real asset investing in their portfolio.

Now, thanks to an EDHEC initiative supported by the industry, as well as the Singapore government, the growth of #fakeInfra, listed or not, may begin to abate.

on the 12th of June 2017, we will release two series of 192 indices of the risk-adjusted performance of hundreds of private European infrastructure equity and debt investments, going back to 2000.

Thanks to the largest database of infrastructure investment data in the world (with close to 3 million cash flow and balance sheet data points) and a unique asset pricing technology designed to estimate the performance of private, highly illiquid assets like infrastructure debt and equity, EDHECinfra can produce the risk-adjusted performance metrics that investors and regulators need to understand private infrastructure debt and equity as asset classes.