News & Analysis

II Global Passport: Infra ‘can do better now’ on valuations

With data readily available, a more 'scientific' approach to valuations needs to be taken, argued Frederic Blanc-Brude. But not everyone agreed that approach was feasible.

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Infrastructure investors must take a more “scientific” view on how they value assets, according to EDHECinfra director Frédéric Blanc-Brude.

Speaking at Infrastructure Investors’ Global Passport session on valuations today, Blanc-Brude highlighted the performance figures of a variety of infrastructure assets, as displayed in EDHECinfra’s infra300 index, data the Singapore-based think-tank says captures the fair market value of 300 infrastructure companies in more than 20 countries, worth about $180 billion.

So when asked during our session if valuing infrastructure assets was “art or science”, Blanc-Brude was firm in his response.

“You can actually extract the risk premia of individual deals and use that to measure where the market is at in terms of risk profiling,” he argued. “We’ve been applying science to this asset class recently when before it wasn’t being done like this. [The asset class] can do better now.”

Blanc-Brude, however, was met with opposition from Serkan Bahceci, partner and head of research at Arjun Infrastructure Partners.

“I don’t think it’s possible to address this question quite efficiently,” he said. “The smoothness of returns will prevail.”

Colin Simpson, head of asset management, infrastructure, at the UK-based Local Pensions Partnership agreed with Bahceci that reaching a consensus on valuations was more of an art than a science. He noted it has been particularly difficult over the last 12 months for LPP, which has £19 billion ($26 billion; €22 billion) of assets under management.

“We use external valuation agents. We have a deep debate every quarter about what they should be,” Simpson said. “The way we’re seeing discount rates compress across the market, it’s taking time for that to feed back into valuations. By the time you’ve got a prudent set of cashflows and a prudent discount rate, you actually couldn’t buy at that price.”

Diversity is the subject of the next get-together on the Infrastructure Investor Global Passport, taking place on 14 April. Comparing infrastructure with other asset classes will be Partners Group’s Esther Peiner, Cambridge Associates’ Meagan Nichols, Carlyle’s Pooja Goyal, HarbourVest’s Abigail Rayner and advisory group BSR’s Aditi Mohapatra. To join, click here