IPD launches global unlisted infra index

The MSCI subsidiary’s latest venture could help investors and regulators better understand the risk/reward profile of the asset class, its proponents say.

Investment Property Databank (IPD), a subsidiary of index provider MSCI, this week unveiled a new benchmark designed to assess investment performance in the global, unlisted infrastructure market.

Presented by the company as a first for the industry, the IPD Global Infrastructure Direct Asset Index aims to provide a robust measure of performance that can be used to compare infrastructure against competing asset classes and benchmark returns across investments.

Its database so far comprises 132 investments, worth a total of $49 billion, with constituents including Alberta Investment Management Corporation, AMP Capital, AustralianSuper, Deutsche Asset & Wealth Management, Hastings Funds Management, Infrastructure Capital Group, JP Morgan, Palisade Investment Partners, QIC and Whitehelm Capital, IPD said during a webinar introducing the index this week.

Peter Hobbs, managing director at MSCI, explained during an interview with Infrastructure Investor that the initiative builds on IPD’s Australia Unlisted Infrastructure Index, launched in 2012 as a number of the firm’s existing clients, already familiar with IPD’s real estate indexes, took interest in the infrastructure asset class.

Yet Mark Weedon, a vice president at MSCI, noted that IPD’s latest venture differs in a significant respect: the data compiled by the global index is gathered at the asset level – as opposed to the fund level – allowing for a measure of investment performance irrespective of investment vehicle structure.

The index, which is to be released quarterly from Q4 2014, currently captures about 20 percent of the unlisted infrastructure securitised market, IPD reckons. Described by the company as “consultative”, it is for now largely exposed to Australia (44 percent), Europe including the UK (43 percent), and North America (8 percent). It is also heavily weighted towards the transport (47 percent), power (27 percent) and water (22 percent) sectors.

Over time, Weedon explained, the ambition is for the benchmark to represent at least 60 percent of the market, both globally and within a number of segments the company intends to explore more closely. The first goal, Hobbs adds, will be to provide more geographical granularity, an objective he thinks the index will have made significant progress towards when its next stream of results are released before end of Q1 2015.

He said that most of the large global investors have shown interest for the index, which aims to offer a more robust assessment of performance than the CPI + benchmark many limited partners use to assess infrastructure investments. Less experienced investors, attracted by the asset class but still looking for tangible proofs that it can deliver on its promises, could also benefit from using it, he said.

Serkan Bahceci, head of infrastructure research at JP Morgan Asset Management, said the index would be especially useful to managers of multi-asset portfolios looking to allocate capital to competing strategies.

He also noted that the index could help regulators form a better picture of the risks associated with the asset class – a theme of particular relevance at a time when new regulation governing the capital insurance companies have to set against infrastructure is being drafted by European authorities, he said. Brussels has often cited the lack of consistent data as the main reason why drafted regulation proposals, in their current form, consider infrastructure to be as risky an asset class as private equity.

The index’ first set of results describe infrastructure as a strong performer: investment in a pool of underlying infrastructure investments delivered an annualised return of 14.7 percent as at June 2014, comprising 4 percent of income return and 10.4 percent of capital gain. Power and transport, at 18.3 percent and 16.8 percent respectively, were the sectors posting the sturdiest performance.