EDHECinfra Index Methodology
EDHECinfra indices and benchmarks aim to provide the representative, risk-adjusted performance of investments in unlisted infrastructure equity and private debt.
EDHECinfra produces calculated (as opposed to contributed) indices: our data and technology allows re-pricing hundreds of individual assets through time, using actual transaction prices to recalibrate expected returns (and discount rates).
This approach uses market inputs, thus avoiding the smoothing of returns caused by appraisal valuations and providing a genuine fair value assessment of performance.
Unlike other private indices, which only report an average performance, EDHECinfra indices include the effect of diversification and provide advanced risk metrics such as volatility, value-at-risk and risk factor prices. The index calculation method is summarised below in four key steps.
A Representative Universe
Universe construction uses systematic rules to identify principal markets (IFRS-13) and select individual companies. As of early 2019, the EDHECinfra Universe includes 25 countries and more than 5,000 firms.
EDHECinfra indices are designed to represent the risk-adjusted performance of the unlisted infrastructure market i.e. to embody the Principal Market in the sense of IFRS 13 and fair value accounting.
In effect, a `broad market’ index aims to represent the principal market: a market with enough knowledgeable participants and transactions to reveal fair price signals.
The index universe that is relevant to measuring performance in the principal market is defined in three steps:
- National Market Inclusion: Relevant National Markets are determined on the basis of national-level index inclusion criteria including the level of activity (number and frequency of transactions and market participants) and relative size, but also minimum data availability;
- Individual Company Inclusion: Within the markets that qualify under these criteria, potential index constituents, whether they are equity or debt issuers, are also required to meet a set of minimum inclusion criteria, including investibility, age and minimum data availability.
- A Sampled Universe is built that meets certain minimum representatively criteria (see below). The Sampled Universe is then used as the basis for defining the constituents of the global broad market index. Broad market index constituents are further filtered according to minimum size and time to maturity filters