While the performance associated with illiquid assets like infrastructure plays a growing role in the alternative investment decisions of pension funds, these funds are also now considering investing in infrastructure businesses to gain exposure to predictable, a-cyclical and inflation-linked cash flows in an effort to hedge future liabilities.
Identified as one of the priority research topics by the EDHEC-Risk Institute International Advisory Board, in 2012 the Institute launched a theme-specific research programme on infrastructure investment and established two research chairs dedicated to long-term investment in infrastructure equity and debt, respectively, with active support from the private sector. The underlying aim was to deliver original research in the underdeveloped field of infrastructure investment management and present this research directly to institutional investors, and also to develop a methodology for the creation of an investment benchmark for unlisted infrastructure equity and debt.
In 2012, Natixis endowed a Research Chair at EDHEC-Risk to focus on the definition, nature and risk-adjusted performance measurement of private infrastructure debt, with a focus on project financing debt.
In 2013, Meridiam and Campbell-Lutyens endowed a three-year Research Chair at EDHEC to focus on the development of better definitions and valuation approaches to unlisted infrastructure investments.
In October 2015, based on EDHEC-Risk Institute’s reputation in the field of infrastructure research, MAS agreed to provide a five-year grant for the creation of a dedicated research centre on infrastructure at EDHEC. The objective of the grant was to support a programme of data collection on unlisted infrastructure investment as well as the development of a dedicated asset pricing and risk measurement technology for the benchmarking of unlisted infrastructure investments (debt and equity).
In 2016, EDHEC-Risk Institute contributed to the launch of EDHEC Infrastructure Institute (EDHECinfra), a spin-off dedicated to benchmarking private infrastructure investments, the culmination of the Institute’s sustained efforts in this area over a 4-year period. EDHECinfra is now a provider of research and indices on unlisted infrastructure investments.
EDHECinfra was created to address the profound knowledge gap faced by infrastructure investors by collecting and standardising private investment and cash flow data and running state-of-the-art asset pricing and risk models to create the performance benchmarks that are needed for asset allocation, prudential regulation and the design of infrastructure investment solutions.
We collect, clean and analyse the private infrastructure investment data of the project’s data contributors as well as from other sources, and input it into EDHECinfra’s unique database of infrastructure equity and debt investments and cash flows.We also develop data collection and reporting standards that can be used to make data collection more efficient and reporting more transparent. This database already covers 15 years of data and hundreds of investments and, as such, is already the largest dedicated database of infrastructure investment information available.
Using this extensive and growing database, we implement and continue to develop the technology developed at EDHEC-Risk Institute to model the cash flow and discount rate dynamics of private infrastructure equity and debt investments and derive a series of risk and performance measures that can actually help answer the questions that matter for investors.
Using the performance results from our asset pricing and risk models, we can report the portfolio-level performance of groups of infrastructure equity or debt investments using categorisations (e.g. greenfield vs brownfield) that are most relevant for investors’ investment decisions.