Selecting Reference Indices for the Infrastructure Asset Class: A survey of investor preferences and the EDHECinfra families of infrastructure indices

Published:  February 2018
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We examine the results of a large survey of infrastructure investors and their preferences for the segmentation of the infrastructure asset class and set out a taxonomy of unlisted infrastructure investment indices and benchmarks that will now be used to compute all EDHECinfra indices, sub-indices and custom benchmarks.


Key Findings

The survey focuses on five possible types of market segment; geography, sector granularity, the role of business models, the role of corporate structures, and credit risk buckets. The majority of respondents to the survey were asset owners, and over half were focused solely on infrastructure equity investment, while a third seek both infrastructure equity and debt.

When questioned about geographic segmentation of infrastructure, the geographies of standard capital market benchmarks were the least preferred, with less than 10% of responses.

Instead, respondents said that economic development and infrastructure investability were considered the most relevant. For debt markets the level of economic development is the most frequently proposed segmentation across all respondents.

With regard to sector segmentation, we asked respondents if broad sector indices would be more useful than specific sector indices. The results show that preferences are split equally between broad and sector specific segmentation. However, large asset owners who wish to be exposed to infrastructure investments across multiple sectors tend to say that only widely defined sector indices make sense. When asked whether making a distinction between business models (contracted, merchant and regulated) was relevant when categorising infrastructure, 90% of respondents said it was relevant or highly relevant to segment infrastructure investments in this way, in sharp contract with the more limited interest for sector categories.

We also asked whether making a distinction by corporate structure, (i.e. infrastructure projects vs. infrastructure corporates), mattered to investors. Investors’ views were split between the two: 37% favour strictly project finance benchmarks, 42% would rather use benchmarks including projects and corporates, and only 20% would prefer an infrastructure corporates-only index.

Finally, we asked infrastructure debt investors whether it is useful to create infrastructure debt indices by maturity and level of credit risk, standard components of fixed income benchmarks, portfolios and products. Respondents were almost unanimous in the need to bucket infrastructure debt by credit risk and maturity.

EDHECinfra broad market index families

As a result of these findings, EDHECinfra is putting forward a reference set of indices for the infrastructure asset class worldwide: eight broad market indices provide a global view of the asset class (Table 1), while sub-market index families (business risk, sector groups, credit risk) represent specific risk profiles (Table 2).

Table 1

Further still, custom benchmarks enable investors to answer specific research questions and understand the evolution and the risks of certain markets, e.g. UK power market or the global airports market. In the future, these indices can be used to monitor performance, which the majority of survey respondents considered to be the most immediate reason for having benchmarks, as well as defining asset allocations and creating new investment products.