EDHEC Research Insights

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.

ESG Reporting and Financial Performance: the Case of Infrastructure

This paper represents the first attempt at studying the relationship between the Economic, Social and Governance (ESG) and the financial characteristics of infrastructure companies.

The relationship between the impact of certain companies’ activities on their social and natural environment on the one hand, and their ability to deliver a certain level of financial performance on the other, is now a central question in the debate around responsible investment, especially when investors represent large constituencies of pension plan members, whether they belong to collective or individual schemes.

Unfortunately, such claims about the links between impact and returns in infrastructure are hard to substantiate. They are not verifiable, let alone falsifiable, in the current state of available data, because data on the actual impact of individual infrastructure companies on their immediate or distant social and environmental milieu simply does not exist today.

In this paper, as a first attempt to address this topic, we investigate the role of ESG reporting in relation to the financial performance of infrastructure companies. Indeed, data on ESG reporting is available and there is ground in the academic literature for arguing that the tendency to report ESG practices and the quality of this reporting are related to actual sustainable outcomes.

This paper is made possible by cross-referencing two unique databases covering the behaviour of infrastructure firms: the ESG scores computed by GRESB Infrastructure since 2016, and the financial metrics corresponding to the EDHECinfra universe.

Which Factors Explain Unlisted Infrastructure Asset Prices?

This 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.
Private infrastructure is an illiquid market and assets do not trade often. As a result, observable transaction prices are limited and are not representative of the investible market.
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 (the EDHECinfra universe) which is built to be representative of the investable market.
Six factors are found to explain the market prices of unlisted infrastructure investments over the past 15 years; size, leverage, profits, term spread, value and growth. To these usual suspects, one can add sector and geographic effects. The result is an unbiased view of the evolution of prices (price-to-sales and price-to-earnings ratios).

Unlisted Infrastructure Asset Pricing Methodology – A modern approach to measuring fair value in illiquid assets

EDHECinfra produces calculated indices (as opposed to contributed indices), the computation of which requires estimating the value of individual constituents: unlisted infrastructure equity or debt investments qualifying under the TICCS taxonomy.

This document describes the approach taken to estimate the value, performance, and risk of each individual index constituent.

This approach aims to follow a number of recognisable guidelines on “fair value” accounting as defined under IFRS 13 and ASC topic 820 (US GAAP).

The Infrastructure Company Classification Standard

Private infrastructure investment is developing rapidly as a global asset class. This evolution requires a clear and robust classification of the individual infrastructure companies that equity investors can acquire or debt investors can lend to. The Infrastructure Company Classification Standard (TICCS) was created by EDHECinfra to provide investors with a frame of reference to approach the infrastructure asset class. It offers an alternative to investment categories that were inherited from the private-equity and real-estate universe (e.g., “Core” vs. “Core+”), which may not be the most informative when trying to group infrastructure investments and design strategies or simply to document the structure of the sector. TICCS is designed to be compatible with other standard investment-classification schemes, but it also uses fundamental insights from the academic literature to create a classification that embodies some of the key aspects of infrastructure businesses’ risk profiles.

Research for Institutional Money Management – Fall 2018

Investors hit a roadblock when investing in infrastructure. Until now none of the metrics needed by investors were documented in a robust manner, if at all, for privately held infrastructure equity or debt. This has left investors frustrated and wary. In a recent EDHECinfra/Global Infrastructure Hub Survey of major asset owners, more than half declared that they did not trust the valuations reported by infrastructure asset managers.
How, under such conditions, can the vast increases in long-term investment in infrastructure by institutional players take place? We need transparency and accurate performance measures.

This is the year of the Argentinian presidency of the G20 and it has been marked by a focus on infrastructure investment. With the support of the G20, the Singapore government, The Long-Term Infrastructure Investors Association, the Long-Term Investment Club and numerous private sector supporters, including Natixis, EDHECinfra has now built the largest database of infrastructure investment data in the world. With this we can now bring transparency and accurate performance measures to the infrastructure sector.

Using this data EDHECinfra has created performance benchmarks that are needed for asset allocation, prudential regulation and the design of infrastructure investment solutions. These first of a kind benchmarks provide investment metrics that are needed by investors; return, volatility, Sharpe ratio, duration, and maximum drawdown.
In 2019, this database will reach global coverage and a global index for private infrastructure debt and equity tracking 1000 firms can be published.

We started our journey to build benchmarks for infrastructure investors in Europe, the oldest and largest investible market for infrastructure in the world. We analysed the European market and selected the 14 major markets for infrastructure. We studied the size, age and evolution of the infrastructure industry in each of those countries, and painstakingly identified all investible infrastructure assets.

2018 EDHECinfra Research Insights


1. Establishing an industry standard for the infrastructure asset class
2. A survey of investor preferences for the segmentation of private infrastructure
3. Infrastructure investment in emerging markets: Closing the “data gap”
4. The Rise of “Fake Infra”
5. Credit risk in private infrastructure debt
6. Investor Perceptions of Infrastructure: Willingness to Invest
7. Take the next exit: A case study of road investments gone wrong, Spain 1998-2018
8. Three routes to maximising infrastructure finance for development

2018 EDHEC Research Insights: Infrastructure Investment Special


1. Establishing an industry standard for the infrastructure asset class
2. A survey of investor preferences for the segmentation of private infrastructure
3. Infrastructure investment in emerging markets: Closing the “data gap”
4. The Rise of “Fake Infra”
5. Credit risk in private infrastructure debt
6. Investor Perceptions of Infrastructure: Willingness to Invest
7. Take the next exit: A case study of road investments gone wrong, Spain 1998-2018
8. Three routes to maximizing infrastructure finance for development

Take the Next Exit – A Case Study of Road Investments Gone Wrong, Spain, 1998-2018

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 roads the simultaneous procurement of multiple large projects in a single national market, and extremely aggressive financial structuring meant the projects could not withstand the twin shocks of rising land expropriation costs and falling traffic volumes.

But nor should the Government have covered lenders’ losses despite the guarantee that covered events of bankruptcy. The authors use a series of models based on Game Theory (the theory of strategic bargaining) to show there was no incentive for the private sector to restructure the failing concessions and it becomes rational for the public sector to let the projects fail. There were no bad guys, just rational actors.

Selecting Reference Indices for the Infrastructure Asset Class

This position paper examines the results of a large survey of infrastructure investors and their preferences for the segmentation of the infrastructure asset class. Using those results, coupled with modern finance theory about what should matter to investors, this paper sets out a taxonomy of unlisted infrastructure investment indices and benchmarks that can give structure the global unlisted infrastructure asset class.

This taxonomy will now be used to compute all EDHECinfra indices, sub-indices and custom benchmarks.