A Modern Approach to the Valuation of Unlisted Infrastructure Assets

Measuring the value and risk inherent in unlisted infrastructure investment is plagued with significant methodological issues. CAPM-approached using listed proxied fails to capture the characteristics of infrastructure companies (see Amenc et al 2017) and it is practically impossible to find direct equivalents or comparable for assets that are quite unique and seldom trade.
To respond to this challenge, EDHECinfra has developed a Modern Asset Pricing Methodology to derive produces fair value estimates for equity and senior debt instruments in each infrastructure firm in its Sampled Universe.
In each period, implied excess returns are derived from actual transaction prices and forecast of dividend or senior debt payments. These expected returns represent the aggregate market price of risk for a cross-section of equity or debt investments at that point in time. They are then decomposed into multiple risk factor premia (e.g. the size or leverage risk premia) using a cross-sectional regression.
Each risk premia in a given period can then be applied to all relevant investments at that time, whether they are traded or not, using each company’s `factor loadings’ (e.g. its actual size or leverage) to derive a market-implied discount rate for each investment
Given enough data, this form of `hedonic factor pricing’ addresses the biases of observable transaction data and of the uniqueness of each transaction, and focuses on deriving average valuations driven by the price of systematic risk factors that can be extracted from actual transactions i.e. in line with IFRS-13 guidelines.