Unlisted infra assets deliver 14% gain in 2019, EDHECinfra index reveals

The strong returns were slightly offset by a fall in the fourth quarter, as interest rates began to rise.

Unlisted infrastructure assets delivered gains of 14 percent in 2019, according to an asset-performance index published by EDHECinfra.

The Singaporean research institute’s index for unlisted infrastructure assets across 25 countries displayed the positive year-on-year returns. A weaker fourth quarter, however, showed a strong correlation with interest-rate risk, EDHECinfra said.

The annual results also showed the average global infrastructure equity premium at just below 5 percent. That is down from 5.5 percent in 2018 and 8-9 percent before 2012.

“In previous years, interest rates have gone down so discounted cashflows have gone up. In recent months, we’ve seen the bounce back of interest rates,” Frederic Blanc-Brude, director of EDHECinfra, told Infrastructure Investor.

EDHECinfra said some of the stronger performers in its index were assets with robust, contracted business models. The institute pointed to IH-635 road PPP in Dallas, which generated returns of 5.6 percent per annum, as an example of the robust cashflows demonstrated by contracted projects.

In addition to toll roads, merchant independent power producers were highlighted as strong performing assets, with their merchant-risk profile making them less affected by higher long-term yields in other markets.

“Renewable energy has a very low risk premium, but power plants and roads are merchant and have a higher risk premium, up to 7 or 8 percent,” Blanc-Brude added.

Some of the worst performers in the index in the final quarter of 2019 were UK water companies, including Affinity Water, which recorded a -13.6 percent year-on-year decrease. Affinity Water last year recorded a write down on its value of £40 million ($52.2 million; €47 million) as dual political and regulatory threats took a toll, part-owner HICL revealed at the time.

South East Water, owned by Utilities Trust of Australia fund, RBS Pension and Desjardins, was also listed among the lower-performing assets.