OECD High-level Seminar on Quality Infrastructure Investment Session 1-blanc-brude-impact-of-covid19-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
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6. CONFIDENTIAL
KNOW YOUR TICCS®
UNDERSTAND YOUR RISKS

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