The Valuation of Privately-Held Infrastructure Equity Investments

Frédéric Blanc-Brude, Majid Hassan: This paper, which is drawn from the Meridiam and Campbell Lutyens Research Chair at EDHEC on Infrastructure Equity Investment Management and Benchmarking, proposes a valuation framework for privately-held and very illiquid assets such as equity stakes in infrastructure projects.

Author(s):

Frederic Blanc-Brude

Research Director at EDHEC Risk Institute–Asia and heads of Institute’s thematic research programme on infrastructure financing and investment.

Majid Hasan

Research Assistant at EDHEC Risk Institute-Asia and PhD Candidate at EDHEC Business School.

Such a framework is one of the key steps identified by EDHEC-Risk Institute as part of a roadmap to design long-term infrastructure investment benchmarks that can take into account the nature of such assets as well as the paucity of available data. Indeed, The design of an academically validated valuation framework, while necessary to ensure adequate performance measures, is constrained by the practical limitations of collecting private information that is scattered amongst many investors and is often confidential in nature. The approach taken by the authors aims to balance the objective of using academically sound pricing models with that of requiring a parsimonious data input, thus making the necessary data collection process costefficient and realistic. To address these issues, this paper develops a cash flow forecasting model and a pricing model that make use of powerful but simple Bayesian statistical principles, thus allowing the leveraging of available information as well as built-in learning, as and when new data become available. This research also leads to the creation of a data collection template for infrastructure investors and their managers, which could be a useful starting point for a reporting standard of private infrastructure investment data and performance. With such a standard, industry-wide data collection can take place and the knowledge of the risk-adjusted performance of infrastructure equity investments can be improved to the point where asset allocation decisions and the calibration of prudential frameworks do not have to treat infrastructure investment as a known unknown anymore. The next stage in the development of long-term investment benchmarks in infrastructure is the active collection of the required data from long-term investors in infrastructure on an ongoing basis, which EDHEC Business School will be pursuing in the coming years, with its industry partners.
Pdf
The Valuation of Privately-Held Infrastructure Equity Investments...
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Type: EDHEC Publication
Date: le 05/01/2015
Extra information : For more information, please contact EDHEC Research and Development Department [ [email protected] ]
Research Cluster : Finance

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