Une nouvelle publication de recherche de l’EDHEC Infrastructure Institute dont les conclusions sont reprises dans leur intégralité par le rapport de Commission d’enquête du Sénat sur « le contrôle, la régulation et l’évolution des concessions autoroutières » publié le 18 Septembre 2020, met en lumière l’archaïsme de la réglementation des péages dans les concessions d’autoroutes en France, et appelle à ne pas attendre encore 20 ans pour remédier à une situation avant tout préjudiciable aux usagers.
Le rapport de Commission d’enquête du Sénat mais en avant des chiffres publiés par l’Autorité de Régulation des Transport (ART) le 31 Juillet 2020, selon lesquels le rendement global (à la fois historique et attendu) du capital des concessions autoroutières en France serait entre 6.4% et 7.8%. Si on ajuste ces chiffres pour prendre en compte le rendement de la dette sur les bilans des différents concessionnaires, on obtient un rendement moyen des fonds propres entre 27% et 35%. Cette belle performance financière à une contrepartie : la cherté des péages perçus sur les autoroutes concédées françaises.
The high level of tolls on privatised highways is a sensitive matter in French politics. This research paper on the adequate level of tolls on French roads is prominently featured in a report released by the Senate Investigative Committee on the control and regulation of highway concession contracts and highlights the failure to set tolls using fair benchmarks.
The report of the Senate Inquisitive Commission on the “control, regulation and development of motorway concessions” published today highlights the findings published by the French Transport Regulatory Authority (ART) on July 31, 2020, according to which the overall return (both historic and expected) on the capital of motorway concessions in France is between 6.4% and 7.8%. If we adjust these figures to take into account the cost of debt on the balance sheets of the various road concessionaires in France, the average return on equity is between 27% and 35%, which has not equivalent in Europe. This fine financial performance has a cost: the high level of tolls collected on French highways users.
In this issue of EDHECinfra Research Insights, we first discuss the surprising persistence of absolute return benchmarks in unlisted infrastructure investment. Today, absolute return benchmarks are the norm in the unlisted infrastructure investment sector, yet they are completely inadequate to understand the risk, performance and contribution of infrastructure assets to the total portfolio. The vast majority of investors agree with this assessment. We review what investors have to say about it, the reasons why these benchmarks are inadequate but also why they have tended to persist.
We establish that while long-only infrastructure investment cannot be considered an absolute return strategy (since it not market-neutral) the usual alternatives of using appraisals or listed proxies have been even worse options because they mis-represent the asset class. Absolute return benchmarks have persisted as the lesser evil.
However, recent innovations have increased the range of available choices to benchmark unlisted infrastructure. We show that that the Q1 2020 release of the EDHECinfra indices captured the impact of Covid-19 on infrastructure investment with a high degree of granularity; each sub-index capturing a different risk profile for different segments of the universe.
Leveraging this granularity, a complete analysis of the sources of risk and performance of any infrastructure portfolio can be conducted. In a second article, we use this data to better understand the performance of two peer groups of infrastructure investors: large asset managers and large asset owners.
We show that large infrastructure asset managers outperform the market and large asset owners thanks to the better asset selection skills. We also find they are not able to use asset allocation to different sectors or business risk segments to improve their performance. Instead, they often underperform the benchmark because of their implicit or de facto asset allocation choices.
Next, we summarise some of the findings of a new paper exploring whether infrastructure companies exhibit statistically significant differences from other investable assets. Controlling for variables like size, profitability, leverage, investment opportunities and industry, we show that they do indeed demonstrate unique fundamental characteristics including higher asset tangibility, asset illiquidity and inflexibility and lower operating leverage than a control sample of non-infrastructure firms.
A fourth article presents the first steps of our research program on the ESG characteristics of infrastructure companies: it highlights some of the key findings of a comprehensive review of ESG standards used in the infrastructure sector and argues that as the standardization of ESG follows its path towards consolidation, a scientific, theory-based approach to designing and implementing ESG assessments still remains to be built.
This paper argues that there is no reason for investors in unlisted infrastructure to continue using absolute return or ‘cash +’ benchmarks. It calls for investors to abandon them and adopt market-relative benchmarks based on fair value and representative data.
This change from an absolute reference to a relative one would provide a better appreciation of the risks and performance of infrastructure investments and as such would allow taking more informed investment decisions.
We note that in a recent global survey, most of the industry supported this view. In practice however, many of them still use an absolute benchmark that fails to represent the risks of their infrastructure investments.
We conducted one of the largest survey ever made of infrastructure asset owners and managers in 2019 and found that most investors use absolute benchmarks or listed infrastructure indices to determine their investment strategy, monitor performance and manage risk.
The vast majority of respondents also acknowledge major issues with their infrastructure benchmarking practices: current benchmarks are not representative, do not measure risk, do not allow investor to target or define a strategy and do not offer much information about correlations with other asset classes.
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.
This situation will evolve and, in all likelihood, improve with the development of the asset class. One could make comparisons with the development and gradual improvements made in other alternative asset classes that began to attract institutional investors a couple of decades ago such as real estate or hedge funds.
Long-term investment in illiquid assets creates a demand for monitoring (as the alternative to trading in and out of the asset class) and as better databases and benchmark offerings are created, growing and successful alternative asset classes like infrastructure begin to the long road towards maturity, transparency and better benchmarks.
The next generation of EDHECinfra indices is ready. They are computed quarterly, use meticulously curated private data for hundreds of companies in the 25 most active markets in the world, and cutting-edge fair value asset pricing methods. A key element in this project was the definition of the universe. Infrastructure may not be easily defined but infrastructure investment has to be.
When we started working on this topic at EDHEC we decided to focus more on what “infrastructure investment is like” i.e. what drives risk and less on what “infrastructure does” (move people or electricity from A to B, etc). This is because at the heart of any financial investment decision lies the trade- off between risk and future value.
Even in highly illiquid, opaque private markets, as we show in a series of new papers the systematic factors driving prices in unlisted infrastructure debt and equity, investors make choices that reflect perceived risks and price these risks accordingly.
In this issue, our researchers look at the results of the 2019 EDHECinfra/G20 survey of infrastructure investors to show that investors do not understand the risks they are taking when investing in infrastructure, and they put forward a methodology that can address some of the most difficult issues with regard to the fair valuation of highly illiquid assets such as infrastructure equity and debt instruments.
Using data from the EDHECinfra/LTIIA Research Chair, our authors show that systematic risk factors can largely explain the evolution of average prices for unlisted infrastructure asset, and they examine the drivers and evolution of credit spreads in private infrastructure debt.
Our researchers try to determine if better ESG does improve infrastructure returns, as the environmental, social and governance aspects of infrastructure investments have been an increasingly important set of considerations for investors, and finally they ask the question, is infrastructure always an active strategy?
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.
This paper examines the drivers and evolution of credit spreads in private infrastructure debt. We ask two main questions:
Which factors explain private infrastructure credit spreads (and discount rates) and how do they evolve over time?
Are infrastructure project finance spreads and infrastructure corporate spreads driven by common factors?
We show that common risk factors partly explain both infrastructure and corporate debt spreads. However, the pricing of these factors differs, sometimes considerably, between the two types of private debt instruments.
We also find that private infrastructure debt has been `fairly’ priced even after the 2008 credit crisis. That is because spread levels are well-explained by the evolution of systematic risk factor premia and, taking these into account, current spreads are only about 29bps above their pre-2008 level. In other words, taking into account the level of risk (factor loadings) in the investible universe and the price of risk (risk factor premia) over the past 20 years, we only find a small increase in the average level of credit spreads, whereas absolute spread levels are twice as high today as they were before 2008.
In new research from the EDHEC Infrastructure Institute (EDHECinfra), supported by the Long-Term Infrastructure Investors’ Association (LTIIA) as part of the EDHEC/LTIIA research chair on Infrastructure Equity Benchmarking, we show that systematic risk factors can largely explain the evolution of average prices but also that valuations have shifted to a higher level.
We show that unlisted infrastructure equity prices do not exist in a vacuum but are driven by factors that can be found across asset classes.
Additional research from EDHECinfra, supported by Natixis as part of the EDHEC/Natixis research chair on Infrastructure Debt Benchmarking, examines the drivers and evolution of credit spreads in private infrastructure debt. We show that common risk factors partly explain both infrastructure and corporate debt spreads.
However, the pricing of these factors differs, sometimes considerably, between the two types of private debt instruments.