Investors - JUNE 6, 2014

Report: without benchmarks, private infrastructure investment will be stunted

by Drew Campbell

Substantial investment in infrastructure by long-term investors will not be possible without adequate measures of expected performance and risk — i.e. benchmarks — proclaims EDHEC Risk Institute’s latest report, Benchmarking Long-Term Investment in Infrastructure.

However, the development of these benchmarks is particularly challenging because the market for infrastructure investments is marked by heterogeneous and “lumpy” underlying assets, as well as the private, illiquid and thinly traded nature of the markets in which financial claims to the revenues produced by these assets are originated and exchanged.

To help meet this challenge, EDHEC Risk Institute outlines an eight-step roadmap to develop infrastructure equity and debt benchmarks based on long-term project finance data.

“Today, project finance debt and equity are the main types of financial assets that meet all three criteria and can serve as the reference instruments for the construction of infrastructure investment benchmarks,” notes report author Frédéric Blanc-Brude, research director at EDHEC Risk Institute – Asia. “We have put forward the idea that non-recourse project finance under the Basel II definition creates the most relevant type of underlying equity and debt to invest in infrastructure projects and embodies the expected characteristics of the infrastructure investment narrative.”

The 46-page report also covers the reasons to benchmark unlisted infrastructure investment, defines long-term investment in infrastructure, reports recent advances in infrastructure benchmarking and proposes a way forward for the private infrastructure investment community.

EDHEC Risk Institute is implementing its suggested roadmap with the development of a global database of infrastructure project cash flows and is developing a reporting standard. “Thus the database will make it possible to create and produce long-term infrastructure investment benchmarks, and to calibrate the relevant prudential regulatory frameworks,” Blanc-Brude notes.

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