NATIXIS and EDHECinfra to gauge impact of ESG on infrastructure investing

Infrastructure benchmark pioneers to create measures and indexes of how increasingly significant ESG factors are affecting infrastructure investments EDHECinfra, the same team that created an unlisted infrastructure indexing platform, launches its new three-year research project today. With the support of Natixis, the project’s aim is to create usable, comparable documented measures of the impact and risk profile of social and environmental factors on infrastructure investments. ESG – environmental, social and governance – refers to the central factors in measuring the sustainability and ethical impact of an investment in a company or business. Despite its relevance to today’s financial world, few holistic and systematic measures exist to help investors to track ESG outcomes and related risks. “Infrastructure investments have value because they are useful over long periods of time,” says Frederic Blanc-Brude, director of EDHECinfra. “Social and environmental factors significantly impact this long-term value, but today we do not know how or on what scale.” “We want to find out what the impact of better-designed, more resilient infrastructure can be for the economy and for investors, focusing on the first-order problems, like climate risk and social acceptability, over the life of these investments,” explains Anne-Christine Champion, Global Head of Real Assets at Natixis. “We can build a new area of applied knowledge,” adds Blanc-Brude. “We will be putting together existing datasets with new ones created using artificial intelligence, combined with the depth of knowledge on infrastructure assets and investment shared between …

International Construction Measurement Standards, 2nd edition is open

EDHECinfra partner RICS is launching the 2nd edition of its global consultation on International Construction Measurement Standards (ICMS).

An uncomfortable truth: infrastructure investors do not know their risks

The largest survey of infrastructure investors ever made shows that most investors cannot benchmark the risks they are exposed to when investing in unlisted infrastructure. EDHECinfra releases a new survey sponsored by the Global Infrastructure Hub (GIH, a G20 Initiative). More than 300 respondents took part in the survey, including representatives of 130 asset owners accounting for USD10Tr in AUM i.e. more than 10% of global AUM. This is largest survey ever undertaken of asset owners and managers active in the infrastructure space and is representative of the views of large sophisticated investors. Some of the main findings include: Investors mostly use absolute return benchmarks (based on the risk-free or inflation rate), but less than 10% think they are good enough. Major concerns include: they are not representative, do not measure risk and do not allow asset-liability management. Current absolute return infrastructure equity benchmarks are not ambitious and not hard to beat. Most investors use a spread over real or nominal rate of 400 to 500 basis points. In a low rate environment, this is less than annualised stock market returns. When investors use relative benchmarks, they use ‘fake benchmarks.’ Preferred relative benchmarks are often listed infrastructure indices, which have been shown to have 100% correlation with broad equity indices by academic research. Otherwise, investors use ‘industry peers’ as a relative benchmark, despite the well-known issues encountered with valuation and return smoothing in private markets, as well as the difficulty …

New research shows that infrastructure credit spreads are fair

A new paper drawn from the Natixis/EDHECinfra research chair sheds new light on the drivers of returns in private infrastructure debt. Infrastructure credit spreads remain twice as high today as in 2008, but this new research shows that only 30bps of this increase cannot be explained by changes in systematic risk factor prices.

No financial pain or gain for ESG management and reporting

New EDHECinfra research finds there is no financial penalty or gain (based on Return on Assets) for infrastructure firms to implement ESG management and reporting.A new paper drawn from the EDHECinfra/LTIIA Research Chair shows that Environmental, Social and Governance (ESG) scores are not negatively or positively correlated with the financial performance of unlisted infrastructure firms.

New EDHECinfra study shows that ‘peak infra’ may be behind us

New EDHECinfra research documents the factors behind the evolution of unlisted infrastructure prices over past 15 years. London – 30 January 2019 – A new paper drawn from the EDHECinfra /LTIIA Research Chair shows that common risk factors found in numerous asset classes explain the evolution of unlisted infrastructure secondary market prices. It also shows that after a long period of prices increases, “peak infra” may already be behind us. Unlisted infrastructure prices have increased considerably over the past decade. Was it a bubble or a normal phenomenon? In a new ground-breaking paper, EDHECinfra shows that systematic risk factors can largely explain the evolution of average prices but also that valuations have shifted to a higher level. Author and Director of EDHECinfra Frederic Blanc-Brude said: “The worries about a bubble were driven by the constant increase in prices since 2008. In fact, the process of price discovery happened in slow motion. Infrastructure businesses are expected to deliver steady and predictable cash flows and, to the extent that this is the case, they should be expensive. In a very illiquid market, it took 10 years for investors’ views on fair value to express themselves.” Because private infrastructure is a very illiquid market and assets seldom trade, just looking at average reported prices is insufficient and biased. The paper uses actual transaction prices and advanced statistical techniques to estimate unbiased factor effects and apply these to a much larger group of companies …

Bad procurement creates systematic risk for infrastructure investors

Singapore, 10 April 2018 – A case study of 10 Spanish toll road projects shows that ill-designed procurement can lead to pro-cyclical infrastructure investment risk and significant losses for private investors. EDHEC Infrastructure Institute – an academic research organisation building performance benchmarks for investors in private infrastructure – shed new light on the risks encountered in infrastructure project investment with new research examining the failed Spanish toll roads that the government just took over and intends to retender to private investors later this year. The paper – Tome La Siguiente Salida (Take the Next Exit) – A Case Study of Road Investments Gone Wrong, Spain, 1998-2018 – is based on detailed financial data on each of the concession companies as well as in-depth interviews with individuals representing the public and private sector directly involved in the collapsed projects. Despite the discipline of project financing and the presence of a blanket government guarantee in case of bankruptcy, equity investors were wiped out and their lenders booked losses of 90 cents on the dollar. How and why did these projects fail? The detailed analysis of the events that led to the bankruptcy of all but one of the nine toll road concessions shows how case studies can be a valuable tool for understanding risk for investors. Governments can procure privately financed infrastructure projects in ways that magnify moral hazard and create systematic risk for investors. In the case of the Spanish toll …

EDHECinfra reveals industry standard for unlisted infrastructure benchmarks

Singapore, 30 January 2018 – Based on preferences expressed by major institutions in a new survey, EDHECinfra is releasing a taxonomy of global indices and sub-indices to structure the infrastructure asset class.

EDHEC calls on regulators to take measures against ‘fake’ listed infrastructure

Singapore – 9 October 2017: In open letters to the chairman of the European Securities and Markets Authority (ESMA) and the chairman of the Securities and Exchange Commission (SEC) in the United States, EDHEC has called on regulators to take measures against the risks of investment in so-called `listed infrastructure’.

Game changer infrastructure indices to create multi-trillion dollar sector

Singapore – 13 June 2017 – EDHEC Infrastructure Institute-Singapore (EDHECinfra) is releasing 384 infrastructure debt and equity indices that will change the way investors measure infrastructure investment performance and allow multi-trillion dollar increases in allocation to infrastructure globally. The new EDHECinfra private debt and equity indices cover 50% of the broad market capitalisation of 14 European markets, and provide investors with metrics that have been unavailable to them until now, going back to 2000. Global market coverage is planned to be achieved by 2020. The academic research behind these indices has benefited from the support of NATIXIS and the Long-Term Infrastructure Investors Association (LTIIA) since 2012. EDHECinfra indices are built using asset-level, hand-collected investment data, including infrastructure projects and so-called ‘infrastructure corporates’. The infrastructure investment data depository created and maintained by EDHECinfra covers hundreds of firms, thousands of debt instruments and millions of cash flows and balance sheet items. It is the largest, most comprehensive such database in the world. Thanks to a unique, peer-reviewed private asset pricing technology, previously unavailable metrics such as time-weighted and risk-adjusted returns, value-at-risk, duration, cash yields and a dozen other performance measures of private infrastructure debt and equity investments are now available to investors. According to Frédéric Blanc-Brude, EDHECinfra’s Director: “Our benchmarks will change the way investors approach and manage their infrastructure investments. Key asset allocation, prudential regulation or performance attribution questions can now be answered, and trillions of dollars could now be allocated …

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