EDHEC Infra Days 2023, Day 1

Infrastructure is now a key part of many investors’ core strategy. The successful emergence of this asset class opens many important questions of risk management for pension plans, insurers or private wealth managers. Beyond the Thames Water debacle in the UK, private asset valuation practices are focusing the attention of regulators from the SEC to the FCA. Meanwhile, in the wake of the LDI crisis, the role of infrastructure investment in asset-liability management remains an open question. Finally, the recent sharp increase in extreme weather events illustrates the imperative to measure and benchmark the climate risks of infrastructure assets.

EDHEC Infra Days 2023 is the annual conference of the EDHEC Infra & Private Assets Research Institute and will be the opportunity to present the latest research on these key topics and the application of this research in an industry context over two days.

The first day will focus on academic work on the climate, social and financial risks of unlisted equity and private infrastructure debt investments. Many investors remain exposed to a concentrated portfolio of infrastructure assets and these risks can be very material for them, even if they seem low on average in some cases. Better risk measurement is possible thanks to cutting edge research developed at the Institute in 2023. This research provides relevant, conceptual, robust facts and data to the infrastructure investment community.

The second day, infraMetrics day, will be dedicated to our data solutions, applications drawn from the Institute’s research. Here again, interaction with the infrastructure investing community will be a core part of the seven workshops devoted to use cases for the financial and extra-financial infrastructure data available on the infraMetrics platform.

Programme overview

Day 1
Infrastructure Day – The Imperative of Risk Management

MORNING SESSIONS: ESG, FROM MEASUREMENT TO MATERIALTY

09:00 – 09:10 Introduction

Speaker: Frederic Blanc-Brude, Director, EDHEC Infra & Private Assets

09:10 – 09:40 Keynote: What Materiality of ESG Risk in Infrastructure Investments?

This opening keynote will focus on the role of ESG regulation and frameworks and whether they can provide useful information to investors in terms of risk. Understanding the materiality, and therefore the relevance, of ESG risks is central to making this information relevant to the investment process. ESG factors can contribute to volatility but may also be considered as drivers of the conditional liabilities of companies, including in regulated disclosures.

09:40 – 10:40 What ESG Risks Really Matter? The Social Acceptance of Infrastructure

This session will introduce brand new EDHEC research on the social acceptance of infrastructure activities and companies and show that material ESG risks can be detected and predicted using non-financial data. In contrast, numerous ESG topics have no predictive power when it comes to materiality. These findings invite a parsimonious, theory-based approach to integrating ESG into investment decisions, rather than relying on a laundry list of redundant indicators.

10:40–11:00 Break

11:00 – 12:00 Between a Rock and the Climate: Extreme Climate Risks, -54% or Losing $600bn

This session presents key findings of the EDHEC research program on climate risk in infrastructure investment: on the one hand, runaway climate change could lead to losses as large as half of the portfolio of some investors because of physical damage, on the other, a delayed transition, even if it achieved decarbonisation, would create a gigantic price and interest rate shock and could wipe out as much as $600bn of infrastructure asset value for the same investors. The identification and the deliberate mitigation of climate risks in the portfolio rest on the use of the correct classification of assets by TICCS taxonomy class to better diversify or exclude certain asset types.

Speaker: Darwin Marcelo, Project Director, EDHEC Infra & Private Assets

Panel:

Julien Touati, CEO, REED Management  

Declan O’Brien, Executive Director, Energy and Transport Transition Investments, UBS 

Carlos Sánchez, Senior Director, Climate Resilient Investment, WTW 

Matthew Jordan-Tank, Director, Sustainable Infrastructure Policy & Project Preparation at EBRD 

Diana Budiono, Senior Financial and Impact Risk Manager, Triodos Investment Management

Q&A session with audience

12:00 – 12:45  Climate Risk Measurement in Infrastructure

This session presents groundbreaking work on measuring climate risks at the asset level using a combination of models to estimate emissions, exposure to physical risk, and the valuation of climate risks in different climate scenarios. It highlights the importance of models to improve observable or reported data that suffers from  a range of methodological short-comings and inconsistencies. All reported emission data is the output of  the model. Thanks to a large dataset and the correct methodology, better climate data can be created that is homogenous across the assets in the portfolio.

Speaker: Darwin Marcelo, Project Director, EDHEC Infra & Private Assets

Q&A session with audience

12:45 – 14:00 Lunch

14:00–14:15 KEYNOTE: Decoding Risk and Returns. Measuring Alpha in Private Infrastructure Investments

Investments in private infrastructure are often intermediated by private funds. For prospective investors in these structures, it is imperative to assess the quality of their fund managers. This session will explain how the Direct Alpha Method can be used to dissect manager returns into systematic components driven by corresponding risks, as well as actual manager performance: Alpha. Any such decoding requires granular and accurate benchmarks and we will showcase our approach, utilizing EDHECinfra data for these purposes. 

Speaker: Ralph Eissler, Principal, Quantitative Research Group, Ares Management

14:15-15:00 How Diversified is your Infrastructure Portfolio?

This session focuses on a research paper that is published using monthly data and updated capital market assumptions. It shows that once the correlations are better known the role of infrastructure in the portfolio is clarified.

Speaker: Abhishek Gupta, Associate Director – Solutions, EDHEC Infra & Private Assets

Chair: François Berger, Executive Director, LTIIA

Q&A session with audience

15:00-15:45 Measuring Extreme Risks in Infrastructure Investments

Infrastructure is often presented as low risk but this can lead to misinterpreting the nature of these investments and how they may truly benefit investors. This session discusses the importance of measuring the volatility of infrastructure investments correctly to understand and benefit from their risk-adjusted profile. Using high-frequency data, it analyses the difference between multiple asset classes and the broad infrastructure market and shows that only when measuring the market volatility of infrastructure can the genuinely defensive qualities of the asset class be understood and used to the benefit of investors.

Speaker: Frederic Blanc-Brude, Director, EDHEC Infra & Private Assets

Chair: Avi Turetsky, Partner, Head of Ares Quantitative Research Group, Ares Management

Panel: 

Avi Turetsky, Partner and Head of the Quantitative Research Group, Ares Management

Gerald Wu, Portfolio Manager Infrastructure, LPPI

Gianluca Minella, Infrastructure Portfolio Strategy & Research Lead, ADIA

Amarik Ubi, Partner, Global Head of Infrastructure, Mercer Alternatives

Q&A session with audience

15:45-16:00 Break

16:00 – 17:00 Infrastructure as an Investment Solution

This new paper shows that infrastructure is also a useful contributor to ALM and LDI strategies but only if return correlations and exposures can be measured properly.

Speaker: Pierre Guillemin, CEO and founder, Prospective Valley SA

Chair: Jonathan Crowther, Head of LDI, Mercer

Panel: 

Bruce Phelps, Managing Director, Institutional Advisory & Solutions, PGIM

Thomas Liaudet, Partner, Global Head of GP Capital Advisory, Campbell Lutyens  

Marjia Simpraga, Infrastructure Strategist at Legal & General IM 

Jegor Tokarevich, CEO, SOF 

Lars Koehler, Executive Director, Mount Street Portfolio Advisors

17:00 – 18:00 Lessons from the Thames Water Scandal 

This session will present a new paper on the fundamental reasons for the Thames Water fiasco of 2023 and the perils for investors to enter an asset class like infrastructure without data about the risks and fair market value of such assets. It examines the triple failure of cost of capital regulation, appraisals, and uninformed investors who could not measure risk clearly.

• How tariff regulation sent the wrong message investors
• Safe and boring: myopic appraisals
• How investment structuring turned a water utility into a high-risk bet

Speaker: Tim Whittaker, Research Director, EDHEC Infra & Private Assets

18:00 – 19:00 Cocktail Reception