EDHECinfra Post
An industry standard for the infrastructure asset class
Publication date: 2018-02-06

From ad hoc to world class

Today infrastructure investors use ad hoc benchmarks for unlisted infrastructure investment. They know that’ snot good enough. At EDHECinfra, we are establishing an industry standard for the infrastructure asset class.

And we’ve made significant process. We are establishing a framework for data collection and developing asset pricing techniques to measure the risk adjusted performance of private infrastructure. From this foundation we can now build market indices for infrastructure. But what are the most relevant broad market indices for investors?

Do they wish to invest in infrastructure along the same geographic or sector categories as that of the bond or equity markets? Are infrastructure investors focusing on a different segmentation of the universe? In other words, what would be the industry standard for unlisted infrastructure market indices and sub-indices?

We asked investors and asset managers what they want

We recently conducted one of the largest surveys of infrastructure investors globally. The survey polled more than 200 respondents, in order to establish their preferences for the segmentation of infrastructure. The majority of respondents to the survey were asset owners. More than half were focused solely on infrastructure equity investment, while a third targeted both infrastructure equity and debt.

When questioned about geographic segmentation, respondents least favoured the standard capital market benchmarks, with fewer than 10% of responses positive towards them. Instead respondents said economic development and infrastructure investability was the most relevant. For debt markets, the level of economic development scored the most positively with respondents. As a result the reference market indices for infrastructure should follow broad economic development lines.

In regards to sector segmentation we found that infrastructure investors’ preferred both broad and sector specific segmentation. This is an indication of the infancy of the asset class. The results suggest that access to a well-defined asset class remains limited amongst investors who prefer to focus on sub-segments. However large managers and asset owners who wish to gain exposure to infrastructure investments across multiple sectors say that only widely defined sector indices make sense.

The classification system they have isn’t the one they need

The lack of adequate performance data until now has made it difficult for investors to take a strategic asset allocation view of infrastructure. Ultimately until we better understand the performance of infrastructure, it cannot exist as an asset class in a multi-asset class context.

Infrastructure investment is still typically segmented by industrial sector. However, we argue that business models (contracted, merchant and regulated) offer a more relevant way of grouping investments together. This is especially the case when considering business risk. For example Gatwick Airport, a regulated asset, has more in common with Anglian Water in terms of risk profile than Munich Airport, which operates under a merchant business model. When asked about making a distinction between business models, 90% of respondents saw this method of segment infrastructure investments as relevant or highly relevant.

There is no clear taxonomy

The difference between projects and corporates is another distinction worth making and is as relevant as that between business models. EDHECinfra’s research shows it is projects, rather than corporates, that offer investors the benefits of the “infrastructure investment narrative” of equity-like returns, with reduced volatility and predictable cash flows. Infrastructure projects tend to offer a relatively lower risk business model. They are also usually smaller than an infrastructure corporate. As a result indices built with infrastructure projects tend to diversify better and faster and this means higher returns and lower portfolio risk measures.

Investors’ views were split between the two however:

  • 37% favour project finance specific benchmarks
  • 42% would rather use benchmarks with projects and corporates
  • 20% would prefer an infrastructure corporates-only index

These differences echo the different interpretations of what it means to invest in infrastructure.

And that’s the case with debt too

Finally we asked infrastructure debt investors whether it is useful to create infrastructure debt indices by maturity and level of credit risk. These are standard components of fixed income benchmarks, portfolios and products. Respondents were almost unanimous in the need to bucket infrastructure debt by credit risk and maturity.

Using the results of this survey, EDHECinfra is putting forward a taxonomy of unlisted infrastructure investment indices and benchmarks. We aim to represent the global infrastructure asset class in the ways that investors said would be most useful.

So we are solving the problem

We created eight broad market indices to provide a global view of the asset class, and respond to investors’ requirements at the asset allocation level. A number of sub-market indices also allow investors to monitor the risk-adjusted performance of particular strategies. (See table)

These broad market indices capture the systematic dimensions of infrastructure investment. Two universes (debt and equity) can be divided into broad areas of economic development or by types of corporate structure. The thematic sub-indices (business risk, sector groups, credit risk) represent specific risk profiles. With these sub-indices investors can track the risk adjusted performance of almost any specialised manager or dedicated account focused on a sub-segment of the infrastructure market. Finally infrastructure investors will have the tools to adequately measure the risk adjusted performance of infrastructure.

We can begin to see the development of a distinct infrastructure asset class.

Do NOT follow this link or you will be banned from the site!


  • The information contained on the EDHECinfra website (the “information”) has been prepared by EDHECinfra solely for informational purposes, is not a recommendation to participate in any particular investment strategy and should not be considered as an investment advice or an offer to sell or buy certain securities.

    All information provided by EDHECinfra is impersonal and not tailored to the needs of any person, entity or group of persons. The information shall not be used for any unlawful or unauthorised purposes. The information is provided on an “as is” basis.

    Although EDHECinfra shall obtain information from sources which EDHECinfra considers to be reliable, neither EDHECinfra nor its information providers involved in, or related to, compiling, computing or creating the information (collectively, the “EDHECinfra Parties”) guarantees the accuracy and/or the completeness of any of this information.

    None of the EDHECinfra Parties makes any representation or warranty, express or implied, as to the results to be obtained by any person or entity from any use of this information, and the user of this information assumes the entire risk of any use made of this information. None of the EDHECinfra Parties makes any express or implied warranties, and the EDHECinfra Parties hereby expressly disclaim all implied warranties (including, without limitation, any implied warranties of accuracy, completeness, timeliness, sequence, currentness, merchantability, quality or fitness for a particular purpose) with respect to any of this information.

    Without limiting any of the foregoing, in no event shall any of the EDHECinfra Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits), even if notified of the possibility of such damages.

    All EDHECinfra Indices and data are the exclusive property of EDHECinfra. Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results. In many cases, hypothetical, back-tested results were achieved by means of the retroactive application of a simulation model and, as such, the corresponding results have inherent limitations.

    The Index returns shown do not represent the results of actual trading of investable assets/securities. EDHECinfra maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase the securities underlying the Index or investment funds that are intended to track the performance of the Index. The imposition of these fees and charges would cause actual and back-tested performance of the securities/fund to be lower than the Index performance shown. Back-tested performance may not reflect the impact that any material market or economic factors might have had on the advisor’s management of actual client assets.

    The information may be used to create works such as charts and reports. Limited extracts of information and/or data derived from the information may be distributed or redistributed provided this is done infrequently in a non-systematic manner. The information may be used within the framework of investment activities provided that it is not done in connection with the marketing or promotion of any financial instrument or investment product that makes any explicit reference to the trademarks licensed to EDHECinfra (EDHECinfra, Scientific Infra and any other trademarks licensed to EDHEC Group) and that is based on, or seeks to match, the performance of the whole, or any part, of a EDHECinfra index. Such use requires that the Subscriber first enters into a separate license agreement with EDHECinfra. The Information may not be used to verify or correct other data or information from other sources.

    The terms contained in this Disclaimer are in addition to the Terms of Service for users without a subscription applicable to the EDHECinfra website, which are incorporated herein by reference.

    This site uses cookies to deliver the services you request, improve user experience and measure audience. By continuing to browse our website, you are consenting to our use of cookies. Find out more about this in our Privacy policy.

  • X