Impact of COVID-19 on infrastructure investment-edhe cinfra
1. The impact of Covid-19 on
infrastructure investment
Frederic Blanc-Brude, Ph.D.
Director, EDHECinfra
Presented at the OECD High-level
Seminar on Quality Infrastructure
Investment, 15-16 December 2020
2. Covid-19 impacted the value of infrastructure
investments in multiple ways
Key findings
• General picture of resilience but all sectors are impacted negatively
• Higher risk in ‘merchant’ sectors directly exposed to economic activity
• Importance of duration (int rate risk) in the risk profile of all
infrastructure assets
• Strong performance is driven by the high cash yield (7-8%)
TICCS®
filters
Year-to-date total
return
12-month total
return
10-year total
return
10-year
volatility
99.5% one-year
VaR
Maximum
drawdown
Duration
Selected equity indices
Broad market (global, 650 firms, 25 countries) N/A -3.4% -5.3% 14.9% 12.21% 16.2% 13.7% 8.6 years
Contracted infrastructure BR-10 -1.2% -2.6% 14.8% 11.19% 12.1% 10.3% 7.5 years
Merchant infrastructure BR-20 -4.6% -6.4% 15.3% 14.23% 24.3% 21.6% 10.2 years
Airport companies IC6010 -8.2% -16.2 14.3% 16.49% 31.2% 23.2% 15.8 years
Project finance SPVs CG-10 -2.5% -1.9% 12.4% 11.02% 17.8% 10.7% 8.8 years
Selected debt indices
Broad market infrastructure project finance CG-10 4.4% 4.8% 6.7% 3.1% 0.5% 3.7% 5.3 years
Broad market Infrastructure corporates CG-20 5.5% 3.3% 5.9% 4.0% 4.5% 3.2% 6.6 years
Key Performance and risk measures of selected EDHECinfra indices as of Q3 2020
Source: indices.edhecinfra.com. VaR is the 10-year rolling one-year Cornish Fisher Value at Risk Measure at the 99.5% confidence level, Maximum Drawdown is since inception (2000). Duration is the
modified duration (sensitivity to interest rate risk). All results for equally-weighted indices computed in local currency.
Capital and income return of the broad market index
3. Unlisted infrastructure equity risk
was repriced upward in 2020
Average unlisted infrastructure equity market discount rate, risk premia and risk free
Average unlisted infra equity risk
premia 2017 – Q3 2020
Key findings
• Risk premia from unlisted infrastructure equity secondary market has increased
significantly with Covid-19
• Impact of lower rates has minimized the negative impact on market discount rates
• Impact of market-to-market discount rates can be at least as large as the impact
of Covid-19 on cash flows (dividends)
Source: indices.edhecinfra.com
4. The new infra normal?
What is the post-Covid-19 era like for infrastructure investors?
• The past decade has been one of constant valuation increases and ‘easy’ capital gains. After the GFC
infrastructure was ‘cheap’…and it was also easier not to pay attention to risk…
• The trend in ever increasing valuations stopped 2 to 3 years ago and return expectations started to
converge towards… the cash yield of the asset class ~7-8%
• 2014 is not coming back…
• It is also now clear that infrastructure assets carry certain risks including that of a ‘global stop’ like the
Covid-19 lockdowns. Covid-19 is not a ‘freak event’ that will never happen again. It is the manifestation
of the risks that are inherent to infrastructure businesses.
• Investors get paid a market premium to take these risks. In the end, the fair market value and returns of
infrastructure assets is determined by changes in the price of equity or credit risk and interest rate risk.
• Investors want to understand these risks and use the appropriate benchmark to gauge their
performance and design their investment policy.
5. The future?
• New data and indices allow granular
and mark-to-market benchmarks and
comparing infrastructure directly with
other asset classes.
• With Covid-19 the industry is shifting
towards new benchmarking practices.
• This like hedge funds 10 years ago: move
towards more transparency, better
understanding of risk
• Fiduciary responsibility, prudential
requirements, even the social
responsibility of investors points to the
need for better benchmarks.
• EDHECinfra offers a scientific approach
to benchmarking unlisted infrastructure
assets.
More than 600 organisations are registered on the EDHECinfra platform.
Join the evolution
indices.edhecinfra.com
(free registration and access to the infra300 index)
7. Disclaimer:
The information contained on this proposal (the "information") has been prepared by EDHECinfra solely for informational purposes, is not a recommendation to
participate in any particular investment strategy and should not be considered as an investment advice or an offer to sell or buy certain securities.
All information provided by EDHECinfra is impersonal and not tailored to the needs of any person, entity or group of persons. The information shall not be used for
any unlawful or unauthorised purposes. The information is provided on an "as is" basis.
Although EDHECinfra shall obtain information from sources which EDHECinfra considers to be reliable, neither EDHECinfra nor its information providers involved in,
or related to, compiling, computing or creating the information (collectively, the "EDHECinfra Parties") guarantees the accuracy and/or the completeness of any of
this information.
None of the EDHECinfra Parties makes any representation or warranty, express or implied, as to the results to be obtained by any person or entity from any use of
this information, and the user of this information assumes the entire risk of any use made of this information. None of the EDHECinfra Parties makes any express or
implied warranties, and the EDHECinfra Parties hereby expressly disclaim all implied warranties (including, without limitation, any implied warranties of accuracy,
completeness, timeliness, sequence, currentness, merchantability, quality or fitness for a particular purpose) with respect to any of this information.
Without limiting any of the foregoing, in no event shall any of the EDHECinfra Parties have any liability for any direct, indirect, special, punitive, consequential or any
other damages (including lost profits), even if notified of the possibility of such damages.
All EDHECinfra Indices and data are the exclusive property of EDHECinfra. Information containing any historical information, data or analysis should not be taken as
an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results. In many cases,
hypothetical, back-tested results were achieved by means of the retroactive application of a simulation model and, as such, the corresponding results have inherent
limitations.
The Index returns shown do not represent the results of actual trading of investable assets/securities. EDHECinfra maintains the Index and calculates the Index levels
and performance shown or discussed but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to
purchase the securities underlying the Index or investment funds that are intended to track the performance of the Index. The imposition of these fees and charges
would cause actual and back-tested performance of the securities/fund to be lower than the Index performance shown. Back-tested performance may not reflect the
impact that any material market or economic factors might have had on the advisor's management of actual client assets.
The information may be used to create works such as charts and reports. Limited extracts of information and/or data derived from the information may be
distributed or redistributed provided this is done infrequently in a non-systematic manner. The information may be used within the framework of investment
activities provided that it is not done in connection with the marketing or promotion of any financial instrument or investment product that makes any explicit
reference to the trademarks licensed to EDHECinfra (EDHECinfra, Scientific Infra and any other trademarks licensed to EDHEC Group) and that is based on, or seeks to
match, the performance of the whole, or any part, of a EDHECinfra index. Such use requires that the Subscriber first enters into a separate license agreement with
EDHECinfra. The Information may not be used to verify or correct other data or information from other sources.
CONFIDENTIAL
12/11/20 7