This presentation was held during the 5th GIB Summit, May 27-28 2015. The presentation and more information on the Global Infrastructure Basel Foundation are available on www.gib-foundation.org

1. This presentation was held
during the 5th GIB Summit,
May 27-28 2015.
The presentation and more
information on the Global
Infrastructure Basel
Foundation are available
on www.gib-foundation.org
The next GIB Summit will take place in Basel,
May 24-25, 2016.
The information and views set out in this presenation are those of the author(s) and do not necessarily reflect the opinion of the Global Infrastructure Basel
Foundation. Neither the Global Infrastructure Basel Foundation nor any person acting on its behalf may be held responsible for the use of the information
contained therein.

2. 2
Institutional investors have about USD83tr under management (2012 data)
Source: OECD
Mean allocation in infrastructure is expected to rise from about 1% to about 3%
(i.e. additional USD2000bn)
Source: Preqin (2014)

3. Asset class definition: unlisted infrastructure is mainly (but not only)
about investing equity in project finance schemes
• Project finance is a large enough
asset class (USD 3trn of project
finance funding – debt and equity
from 1995 and 2013) to make sense
from an asset allocation standpoint
• It can rely on a pre-existing
prudential definition since the 2005
Basel II Capital Accord:
• Project finance (PF) is a method of
funding in which investors look
primarily to the revenues generated
by a single project, both as the
source of repayment and as security
for the exposure. In such
transactions, investors
> This approach may have to be
combined with other type of
infrastructure assets approach
(e.g. regulated utilities)
Define the underlying in infrastructure investment as the instruments
created through project financing
3
Infrastructure equity investments can be defined as privately-
held shareholdings in firms created to build, operate and
maintain certain infrastructure projects or networks
SPV
Procuring authority
Construction/ facilities
management sponsor/
developer
Financial sponsor/
developer
Debt provider(s)
Concession
agreement Equity and
sub
debt finance
Debt
finance
Debt
Equity
Construction
contract
Construction contractor
Facilities management
operator
Operating and
maintenance contract
Interface Agreement
Backup

4. Why do institutional investors invest in infrastructure ?
• The ”infrastructure investment narrative” has been defined by Dr Blanc Brude (2013):
> Low price-elasticity of demand = low correlation with the business cycle
> Inflation hedge
> Predictable and substantial free cash flow
> Attractive risk-adjusted cash yield, available over long periods
> Opportunity to invest in unlisted assets
• In other words, this ideal-type implies
> Improved diversification from other asset classes (e.g. listed bonds, listed equity, real estate)
> Better liability-hedging
> Less volatility than capital market valuations
Infrastructure from an institutional investors asset-allocation standpoint
is expected to serve various objectives
4
Is this observed in practice ?
Benchmarks/indices should help to address a number of issues including
• legitimate and improve asset allocations
• improve valuation methodologies and asset-liability matching
• better calibrate risk-based prudential frameworks and improve the industry’s discussions with the
regulators
• …create an independent asset class… and ultimately challenge more funding to infrastructure

5. Investors’ current benchmarking methods
Source: PEI
Backup

6. • In a recent publication (March 2015), EDHEC Risk Institute has developed a valuation
methodology that provides a valuation framework for infrastructure equity investments
requires two components:
1. A model of expected dividends and conditional dividend volatility, calibrated to the best of current
knowledge
2. A model of endogenously determined discount factors, that is, the combination of expected
returns implied by the distribution of future dividends, given observable investment values.
Valuing properly unlisted infrastructure assets requires to identify
standardized risk factors and adapt to endemic data paucity
6
* Export Credit Agency
** Political risk insurance
« Environmental & social
governance
Backup

7. Example of IDFC CSR initiative

8. 8
What is helping / what is holding back ESG integration in investment
decisions
Source: P&I