Infrastructure investors may be taking huge risks if they do not diversify their portfolio adequately

Written on 17 October 2017.


A new paper examines the characteristics of the EDHEC Private Infrastructure Equity Index and finds that investors that do not sufficiently diversify their private infrastructure portfolio should not expect to receive all the benefits of the 'infrastructure investment narrative.'

"Infrastructure investments are large but also vary considerably in size," says Frederic Blanc-Brude, Director of EDHECinfra, "As a result, many investors holding a dozen or so assets could be making highly concentrated bets and may not get what they have come to expect from infrastructure investing."

The EDHEC paper shows that while the broad market index reports attractive risk-adjusted performance, risk can be high at the asset level, with return volatility ranging from 10% to 150%, and portfolio diversification must play an essential role in delivering the low-risk, high-return profile that investors have been told to expect from infrastructure.

"The future of infrastructure investment is partly a matter of designing investment solutions that will allow end investors to access the asset class on a well-diversified basis. The development and maintenance of broad market benchmarks for private infrastructure investors is important in this regard," says Eugene Zhuchenko, Executive Director of the Long-Term Infrastructure Investors Association, which supports the research done by EDHEC on unlisted infrastructure investment.

"These results should be a wake-up call for so-called direct investors in infrastructure," says Blanc-Brude. "We can now measure the individual contribution of each infrastructure asset to the portfolio and it is clear that being under-diversified may be very costly in the long-run if better products are not designed to access private infrastructure."

The research paper is available to download here.

The indices mentioned in this study are available on the EDHECinfra website and through Bloomberg (tickers: EIPDE, EIPDEPF and EIPDEC).

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