Which Factors Explain Unlisted Infrastructure Asset Prices? Evidence from 15 years of secondary market transaction data

Published:  January 2019
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This paper drawn from the EDHECinfra /LTIIA Research Chair shows that common risk factors found in numerous asset classes explain the evolution of unlisted infrastructure secondary market prices. It also shows that after a long period of prices increases, “peak infra” may already be behind us.

Summary

This paper drawn from the EDHECinfra /LTIIA Research Chair shows that common risk factors found in numerous asset classes explain the evolution of unlisted infrastructure secondary market prices. It also shows that after a long period of prices increases, “peak infra” may already be behind us.

Private infrastructure is an illiquid market and assets do not trade often. As a result, observable transaction prices are limited and are not representative of the investible market.

The paper uses actual transaction prices and advanced statistical techniques to estimate unbiased factor effects and apply these to a much larger group of companies (the EDHECinfra universe) which is built to be representative of the investable market.

Six factors are found to explain the market prices of unlisted infrastructure investments over the past 15 years; size, leverage, profits, term spread, value and growth. To these usual suspects, one can add sector and geographic effects. The result is an unbiased view of the evolution of prices (price-to-sales and price-to-earnings ratios).

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