Research for Institutional Money Management

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.

EDHEC Research Insights – Infra Special

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.

EDHECinfra Research Insights – June 2019

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?

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.

Investor perceptions of infrastructure, 2017

This paper presents the results of the 2017 EDHEC/GIH survey on investor perceptions of infrastructure, revealing infrastructure investors’ medium-term investment intentions, views on market developments, and the efficacy of national infrastructure plans. It also introduces the findings of a new approach to determining the required returns on infrastructure investments required by investors.

The survey provides an annual insight into investors’ perceptions of infrastructure, capturing the changes in their views of the market, expectations of returns, and determining which government/ private initiatives or services are useful to them, or not. It builds on the 2016 instalment and where relevant, provides a comparison to the findings from 2016.

Research for Institutional Money Management: Infrastructure Benchmarking

Contents:
– Access to Infrastructure Investment and #fakeInfra
– Is Listed Infrastructure an Asset Class?
– Private Infrastructure Equity Investment Benchmarks
– Private Infrastructure Debt Benchmarks
– The Valuation of Private Assets
– How to Derive Equity and Debt Index Results

This issue is an Infrastructure Benchmarking Special.

We first address the rise of #fakeInfra and how it has been an obstacle to the development of real infrastructure investment. There is no such thing as a “listed infrastructure asset class.” It is presented to investors as an opportunity to gain exposure to something new or rare, but has really always been available — that is, it is already “spanned” by existing capital market and other instruments.

2017 EDHECinfra Research Insights

Contents:
– Towards better infrastructure investment products?
– Looking for a listed infrastructure asset class
– Is private infrastructure different?
– Tracking credit metrics in private infrastructure debt
– Data collection for infrastructure investment benchmarking

In this Special Issue of EDHECinfra Research Insights We present the result of the first in-depth survey of institutional investors’ perceptions and expectations of infrastructure investment. Almost two thirds of surveyed institutions declared that they wanted to increase their current holdings of infrastructure investments.

The survey reveals some important evolutions and also important differences of perspectives, amongst investors and also between asset owners and managers. One of the key findings is that investors have no bench- marks and do not trust reported valuations.In a short article, we then look at whether an asset class of listed infrastructure exists. We do not manage to find listed proxies for infrastructure assets. We conclude that what is typically referred to as listed infrastructure is not an asset class or a unique combination of market factors. It cannot be persistently distinguished from existing exposures in investors’ portfolios. Expecting the emergence of a new or unique “infrastructure asset class” by focusing on public equities selected on the basis of industrial sectors is unlikely to be very useful for investors.

2017 EDHEC Research Insights

In this Spring 2017 issue of the EDHEC/IP&E Research Supplement, research by EDHECinfra includes the summary results of the first in-depth survey of institutional investors’ perceptions and expectations of infrastructure investment.

It documents the reasons for investing in infrastructure and whether currently available investment products or strategies are helping investors meet these objectives.

The findings provide a first step towards integrating infrastructure in long-term investment solutions. Key findings are reported in the following areas: investment beliefs; products and objectives; benchmarking; and ESG (environmental, social and governance).

We also ask whether focusing on listed infrastructure stocks creates diversification benefits previously unavailable to large investors that are already active in public markets. We conclude that what is typically referred to as listed infrastructure is not an asset class or a unique combination of market factors, but instead cannot be persistently distinguished from existing exposures in investors’ portfolios.

Towards better infrastructure investment products?

In this paper sponsored by the Global Infrastructure Hub (a G20 Initiative) EDHECinfra presents the result of the first in-depth survey of institutional investors’ perceptions and expectations of infrastructure investment, and asks what next generation of investment products can better answer the needs of long-term investors in infrastructure.

infraMetrics® by EDHECinfra

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