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Issue 08, January 2024 Contents
Editorial: The Year of Private AssetsThere has never been so much capital allocated to private asset classes, and as they have matured and become de rigueur, private assets have also become the object of increasing scrutiny by strategy teams, risk departments, regulators, trustees, and the CIOs of many an institutional investor. To respond to this increasing demand for information and transparency in the private asset space, we are launching several new products in 2024 that will provide investors with the market information they need to understand their investments better, as well as the tools they require to evaluate existing assets and new transactions in line with current market prices. In Q2 2024, we will launch privateMetrics® – infraMetrics' bigger cousin: a series of market indices tracking the dynamics of private equity investments at the asset level, computed monthly and going back more than 10 years. These indices will track a universe covering all economic sectors in more than 60 countries, and our asset pricing approach, which is described in a new paper released this month (see below), produces shadow prices for more than one million firms, with an average difference of estimated vs. observed transaction value, within each segment of the market, very close to zero. In other words, at the market segment level, we show that it is possible to produce very reliable market average price estimates and to build highly informative market indices. These indices, which capture the level and variance of prices for key segments of the private equity sector, will be essential tools for GPs and LPs alike to compute the risk-adjusted returns of certain fund strategies, evaluate the performance and out-performance of specific funds, or to assess the entry and exit price of secondary trades. Moreover, these indices will be the first in private markets, to reflect up-to-date information without lag. We will also soon propose new options for our clients to access the infraMetrics and privateMetrics data and use it directly in their day-to-day investment process with the release of API solutions, from MSExcel to Python. Thanks to these new tools, investors will be able to integrate customised and robust comps based on thousands of observations directly into their own evaluation models and softwares. infraMetrics and privateMetrics provide the most representative market-level data available. Combined with asset-level data only available to investors themselves, these data represent the best guarantee of correctly estimating the fair market value of private assets. We look forward to working with you in 2024. Frederic Blanc-Brude, Ph.D. CEO Scientific Infra & Private Assets Data Release: 2023 Q4 infraMetrics Data ReleaseIn a year where the macroeconomic environment stabilised and global stocks returned more than 20%, unlisted infrastructure investments also showed strong performance. The infra300® equity index, a flagship unlisted infrastructure equity index consisting of 300 companies across the global infrastructure market with a market capitalisation of more than $300bn, returned 1.69% and 9.57% in the month of December and Q4 2023, respectively. The strong performance in the final quarter of 2023 resulted in the index returning 13.80% for the full year, buoyed by a stable interest rate environment and higher than expected dividends. All sectors had a positive return contribution to the index, with transport assets leading the way. Looking at the contribution to return by TICCS® business risk, assets with contracted business models represent the main driver of the index’s performance. A comprehensive analysis of return drivers can be conducted within the infraMetrics® platform. infraMetrics also provides investors with detailed access to valuation data and tools, which enables them to conduct comparisons with the prevailing market conditions and use them as inputs in their valuation models. The observed transactions in the infrastructure market and stable interest rates have led to a lower equity risk premium (19bps lower) and discount rates (40bps lower) compared to YE2022. Infrastructure debt investments also bounced back strongly in 2023 after two years of negative returns due to shifts in the yield curve. The infra300 Debt index, comprising 377 debt instruments issued by the constituents of the infra300, continued its positive trajectory throughout the year, increasing by 5.19% in Q4 2023 to end the year 8.45% higher on a total return basis. Long duration debt in regulated network utilities and transport assets was a driver of more than half of the total returns this year. In aggregate, yields in infrastructure debt have shrunk by 70bps as credit spreads have also tightened by 45bps over the year. ⟶ For more trends in infrastructure and performance details, log on to infraMetrics. ⟶ Read our revenue forecast highlights. Product FeaturesFor 2024, the valuation tools in infraMetrics gets a makeover and are now presented in line with standard valuation methodologies to help infraMetrics users navigate this rich dataset. Valuation inputs are available for the income method (cost of capital, discount rates, risk premia, risk factor exposures and returns and cash flow growth and distributions) and the market method (EV/EBITDA, Equity Price to Sales, etc). Each metric is available by category of age, time to maturity, profitability, etc. We have also added a Comps Builder, allowing users to customise comparables by sector, geography but also precise risk factor exposures such as an asset’s exact size or leverage. This produces a very granular comparable estimate, without compromising on robustness thanks to thousands of prices calculated each month in infraMetrics. With these metrics, investors and valuers can build robust and granular estimates of the inputs they need to value private infrastructure equity and debt: infraMetrics gives them the systematic i.e., market-driven part of the valuation exercise. In particular, our models recalibrate the equity risk premia of infrastructure assets each month to capture the effect of new transactions on the market price of the risk (of future infrastructure dividends). From this solid starting point, infraMetrics users can then build the best estimate for their own assets, by adding asset-specific considerations to the final discount rate. ⟶ Check out a one-minute video. ⟶ Contact us to learn more or log into the infraMetrics platform. What is Extreme Climate Value? The Q4 2023 release of infraMetrics includes the latest estimates of extreme climate risks faced by investors in infrastructure, computed with newly updated NGFS (4) and Oxford Economics scenarios. The results allow infraMetrics users to get a detailed view of climate risks at the index or market segment level, including climate impact metrics such as financed emissions or carbon intensity, but also measures of extreme climate value, a unique metric only available via infraMetrics, providing a benchmark of the dollar value of the climate risks faced by investors in different infrastructure sectors and regions. For example, if the planned energy transition required to keep global temperatures below two degrees was to be delayed, we compute extreme climate value or “late alignment risk” as the difference in NAV of all the assets in the index or segment between the so-called orderly and dis-orderly climate scenarios. To compute these results, all assets tracked in infraMetrics are repriced in individual climate scenarios, with different cash flows and different discount rates depending on the scenario, and the difference in NAV either between scenarios or within a scenario (with or without the asset level climate exposure taken into account) provide different estimates of extreme climate value.  ⟶ Click here or on the image above for more details. ⟶ Contact us to learn more or log into the infraMetrics platform. New Research
⟶ Download the paper. Low Tide: What the Data Showed About Thames Water
⟶ Read the summary. IC80 TICCS Companion: Network Utilities As a companion to the Low Tide paper, we are also releasing a compendium of standard metrics and stylised facts for the IC80 (Network Utilities) superclass of infrastructure companies. A good place to start to make comparisons and build comps from a robust starting point. ⟶ Download the paper. Don’t MissFollowing the release of our study of the Thames Water investment fiasco earlier this month, its main author Dr Tim Whittaker will take you for a tour of all the things that should have raised a red flag for investors in Thames (Kemble Water) and how the appropriate level of discount rates seems to have been an afterthought for a long time, until it was too late and a huge write-down had become necessary. The webinar will also go into the reasons why the regulator Ofwat only made things a lot worse by using the wrong model and the wrong data to calculate the cost of capital used to set tariffs. Register for the webinar on 20 February, 2024 at 10:00 CET. ⟶ Read our open letter to Ofwat. ⟶ Read about our paper, "Low Tide" in the FT, Guardian and Bloomberg. TICCS 2024 Consultation The TICCS classification of infrastructure investments has now become a standard used across the industry to slice and dice the infrastructure universe, from Aladdin® to the Global Listed Infrastructure Organisation, investors everywhere rely on TICCS to map their portfolio to the right benchmark. Every two years, a market consultation is launched to collect feedback from the market about the evolution of the infrastructure asset class and the necessity or not to add new activity or business model classes, etc. This consultation has now been launched and will last until June 2024, after which the consultation submissions will be reviewed by the independent TICCS Review Committee which includes some of the largest players in the sector (BlackRock, Ares, OTTP, Natixis, LGIM, etc.) and some of the main standards setters (RICS, GRESB, etc). ⟶ Find our more about TICCS. ⟶ Take part in the consultation. For more information, please contact clientservices@scientificinfra.com. Kind regards, Nataliia Gaidarenko Head of Marketing T : +44 20 7062 5343 Scientific Infra & Private Assets 10 Fleet Place, EC4M 7RB London, United Kingdom nataliia.gaidarenko@scientificinfra.com https://edhecinfra.com/ 
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About Scientific Infra and Private Assets Ltd. (EDHEC Infra & Private Assets): Scientific Infra and Private Assets Ltd. is a venture of EDHEC Business School. We are an ESMA-regulated provider of indexes and analytics for the private equity and debt investment universe. Because the majority of private assets are not easily proxied by publicly traded ones, there has traditionally been a vast knowledge gap when it comes to gauging the prices of these assets and their evolution. We are closing that gap with analytics and calculated indexes that already cover 25 countries representing an investable universe of 7,000 companies. We are based in Singapore and London. https://edhecinfra.com/ |
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