In a position paper published on June 4, the École des Hautes Études Commerciales Risk Institute (EDHEC) argues that benchmarks for long-term infrastructure investments have become essential in order to help match the supply and demand of long-term capital.
The EDHEC argues that long-term investors will be reluctant to make substantial investments without adequate measures of expected performance and risk, namely benchmarks. Developing appropriate infrastructure benchmarks, however, is difficult due to what the EDHEC calls "the heterogeneous and lumpy nature of the underlying assets," as well as the fact they tend to be illiquid and thinly-traded.
In response to the problem the EDHEC Risk Institute has put forward a roadmap suggesting how long-term infrastructure investment benchmarks might be created. "At the level of individual infrastructure equity or debt instruments, we argue for focusing on defining underlying financial assets, using adequate pricing models for thinly traded instruments, defining data collection needs and standardising performance reporting to create a global database of infrastructure cash flows," explains the EDHEC
A copy of the EDHEC-Risk Institute position paper in PDF can be downloaded by clicking here.