Strategy & Risk Management Research
Strategic asset allocation and portfolio construction matter in private asset investing: they help balance risk and return objectives, enable diversification across sub-sectors, geographical regions, and investment types, mitigating specific risks. Aligning investments with long-term objectives, whether income generation, capital appreciation, or inflation protection, enhances portfolio resilience, and thoughtful allocation fosters stability, vital for private assets' illiquid nature. Risk management also helps optimize capital deployment, ensuring efficient utilisation of resources and maximizing long-term returns in private asset classes.
Our research focuses on using market benchmarks and robust risk data to document the characteristics of private asset classes and their potential role in the portfolio.
We examine ESG risks and their implications for the investment community, the investment impact of climate risk on global infrastructure, and present our latest research insights into infrastructure investment portfolio construction and risk management.
We examine two issues relevant to diversification and infrastructure investment: portfolio construction and what it means to build a “well-diversified” portfolio of unlisted infrastructure equity; strategic asset allocation, examining the potential diversification benefits gained by adding infrastructure to the asset classes that make up a typical portfolio.
Investors are concerned about physical climate risk and believe that they have almost no idea how it will affect unlisted infrastructure assets; that’s the clear message they delivered when we surveyed them on their views regarding the risks to the asset class.
The BCG-EDHECinfra study of the risks facing infrastructure investors and the returns that their investments generated found that asset owners did better than asset managers in 2022. The study also found that success in the current environment requires fresh approaches to investing and value creation.
We examine the impact on the risk profile of wind and solar power investments of the increasing dominance of renewables in the energy mix of a given country, using the case of the UK whose economy has made a rapid transition to renewables and away from coal.
This report, produced in collaboration with Ares Asset Management, illustrates that private infrastructure assets can provide resilience in the current rising rate and high inflation macroeconomic environment. The primary structural reason for this resilience is the ability of private infrastructure assets to increase revenues along with inflation.
In this paper, we compare the behaviour of unlisted infrastructure equity investments with that of traditional assets, with a focus on the effects of shocks such as recessions, financial market crises and policy shocks. These findings have risk management and prudential implications.
This report is the first in a series of annual publications by BCG and EDHECinfra exploring the state of infrastructure investment globally. “Infrastructure Strategy 2022” provides a new perspective on the investment styles and risk-adjusted performance of different groups of infrastructure investors.
The infraMetrics fund strategy analyser allows benchmarking the gross and net performance of unlisted infrastructure funds using robust IRR and multiple quartiles that are not biased or skewed by the limitation of manager contributed data.
In this paper, we examine the drivers of the volatility of unlisted infrastructure equity investments. Our analysis uses the EDHECinfra database of unlisted infrastructure equity investment data, which covers hundreds of firms over 20 years and a new approach to measure the market value of these investments over time.
In this contribution to the exposure draft consultation on the “Your Future, Your Super” package, we do not comment on the general approach taken by the regulator to benchmark MySuper products but solely focus on the choice of benchmark for the unlisted infrastructure asset class. We propose abandoning the use
We show how the traditional indexes used as proxies for unlisted infrastructure fail to represent the qualities of the asset class and how investors can carry out a simple asset allocation exercise to calculate the optimal allocation they should be making to unlisted infrastructure based on their individual portfolio needs.
We use the EDHECinfra index data to better understand the performance of two peer groups of infrastructure investors: large asset managers and large asset owners. This case study documents how they perform relative to the market, and to each other and why they perform the way they do.
This paper argues that there is no reason for investors in unlisted infrastructure to continue using absolute return or ‘cash +’ benchmarks. It calls for investors to abandon them and adopt market-relative benchmarks based on fair value and representative data.
This paper represents the first attempt at studying the relationship between the ESG and financial characteristics of infrastructure companies. Indeed, data on ESG reporting is available and there is ground in the academic literature for arguing that the tendency to report ESG practices is related to actual sustainable outcomes.
We examine the results of a large survey of infrastructure investors and their preferences for the segmentation of the infrastructure asset class and set out a taxonomy of unlisted infrastructure investment indices and benchmarks that will now be used to compute all EDHECinfra indices, sub-indices and custom benchmarks.
In this position paper, we document the dangerous rise of the so-called listed infrastructure asset class, an ill-defined series of financial products that initially targeted retail investors and now increasingly reaches institutional investors, which now represent close to a third of the sector.
This study examines the portfolio-diversification benefits of listed infrastructure stocks. We employ three different definitions of listed infrastructure and tests of mean–variance spanning. The evidence shows that viewing infrastructure as an asset class is misguided.
We describe the objectives, roadmap and recent progress of academic research with respect to benchmarking the financial performance of privately-held infrastructure debt or equity investment, with a focus on the recent development of a new framework to collect data and evaluate such assets.
Using new data, we show that construction risk in infrastructure project finance is well-managed and that project sponsors face very little construction risk compared to the well-documented, systematic and very large costs overruns found in traditional infrastructure project procurement.
This paper is the first of a series discussing the opportunity for long-term institutional investors such as pension funds, insurance companies or sovereign wealth funds, to invest in large portfolios of infrastructure debt, both to manage their liabilities and to minimise their exposure to capital market volatility.