The 2019 EDHECinfra / Global Infrastructure Hub survey of infrastructure investors focused on the role of benchmarks and revealed a number of key findings about the benchmarking practices in the unlisted-infrastructure-investment space for asset allocation, performance monitoring and risk management.
Although it is often neglected, the choice of benchmark is a foundational element in the investment process. First, it is an essential source of both the risk and the returns of a portfolio. Second, portfolio out-performance and its measurement also depends on the choice of benchmark. The use of inadequate bench- marks can lead to an incorrect evaluation of the manager’s performance.
Finally, in the case highly illiquid asset classes like infrastructure, managers and investment teams are given the dual objective of delivering a portfolio in line with the investment strategy (building it deal by deal, sometimes over a decade), and to outperform the average implementation of this strategy (deliver alpha). Representative benchmarks are thus absolutely necessary to determine managers’ success with respect to these two goals.
In effect, without adequate benchmarks, the development of a global infrastructure asset class, which is one of the objectives of the G20, is necessarily limited, if not compromised.
The results of this survey highlight the need to use better-defined benchmarks that measure risk and can help investors make better informed asset-allocation, monitoring and risk-management decisions.