1.3 Principles and Guidance
This section describes general principles for the creation and structuring of a data-collection tool or campaign and provides more specific guidelines to Scientific Infra & Private Assets data contributors.
Our approach follows a number of first principles that maximise the chances of success of any data-collection effort:
The information required should be known to exist in a reasonably standardised format.
It should be a subset of the information available to investors and creditors either at the moment of the investment or during the monitoring of its financial performance.
It should only consist of information that is necessary to implement known, robust asset-pricing techniques and risk models.
Given the focus on building portfolios and capturing average effects, data collection should focus on the systematic drivers of risk and performance in privately held infrastructure investments. Data that is too specific to certain types of infrastructure (say, wind forecast for renewable energy projects) is not relevant to the estimation of volatility of certain cash flow ratios, for example.
Applying the framework described in the section on data types, the following data-collection guidelines should apply:
Building investment benchmarks of highly illiquid private assets like private infrastructure debt and equity requires collecting data reported at the underlying firm level.
These firms should be categorised according to a limited set of attributes, which can be expected to systematically explain the risk profile of individual investments: not only the variance but, most importantly, the covariance of cash flows and of returns. These include:
Physical attributes: investment size, technology, sector, location, lifecycle stage, etc.
Business-model attributes: nature of income and cost streams, role of contracts and regulation
The individual financial instruments used to invest in such firms should also be recorded and documented to be in a position to predict the payoffs to different investors:
Instruments should be categorised by type of payoff profile (fixed or variable)
Any conditions (covenants, embedded options, prepayment) should be documented to properly model the expected payoff to investors
The two main types of data to collect relating to the relevant firms and instruments are standardised events and cash flow items
Firm and instrument attributes are control variables that explain the dynamics of different streams of cash flows to different claimants (investors)
Each data point should be reported using a dual time frame, capturing both the time of observation/reporting and that of occurrence (past, present, or future)
Following these guidelines allows creating a powerful framework for reporting, aggregating, and analysing investment data for highly illiquid, private assets for which little transaction data is available, making the use of a combination of cash-flow models and discounting models necessary to arrive at fully-fledged performance benchmarks.
Data-Contributor Guidelines
For data contributors to the EDHECinfra database, financial information must also be submitted under the country's Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS). The accounting principles of the financial information must also be clearly stated in the contribution. Furthermore, all reports should be made on an accrual basis.
Data can be reported quarterly, semiannually, or annually, with an annual frequency being the minimum contribution requirement. All data must state what period it relates to.
For a contribution to be considered complete, the following information should be reported:
All assets, liabilities, and equity amounts of the relevant infrastructure company must be reported. The accounts treatment is provided in the previous section.
Realised profit and loss, balance sheet and cash-flow items. These items should be accounted for using the Generally Accepted Accounting Principles (GAAP) of the country which the asset is domiciled in.
Data contribution should include:
Revenues, expenses, profits, and cash flows from the normal operation of the assets. Any cash flows associated with the investment in the infrastructure that the company controls.
The outstanding balance of any long-term liabilities, debt liabilities, and cash flows associated with drawing down or repaying these liabilities.
Finally, all cash flows to and from equity investors in the form of either shareholder loans or traditional equity issuances, and redemptions, interest, and dividends are required.
Long-term debt (more than 12 months to maturity): For each instrument in the capital structure, sufficient information about the capital structure of the infrastructure company and its evolution over the life of the company is required. Required attributes for all debt and equity tranches and include:
Face value outstanding;
Maturity date;
Base rate of interest;
If no base rate, then the fixed interest rate;
Credit spread if appropriate;
Amortisation profile of the debt; and,
Any information on interest-rate hedges (swapping floating rate exposure for fixed-rate exposure and subsequent effective interest rate for the debt).
Likewise, firm-level covenant information, including triggering ratios where appropriate, should be reported as well as the dates in which they take effect.
As these items change over time, they should be provided with each contribution and for each new debt or equity tranche.
Key events: For each contributed firm there is a requirement to report certain milestones, including when the firm was established, when construction and operations started, and for infrastructure special-purpose vehicles (SPVs), the end of the project’s life. The start date is the date the underlying investment started, not the date when the investors/contributors made their investment. Likewise, the reported end date of the investment corresponds to the life of the underlying investment, not the investor/contributor exit date. Events of entry and exit are treated separately as acquisition events.
For all sales/purchases of the equity of an infrastructure asset, we require the monetary value of the transaction, the ownership percentage, and the date of the transaction (not settlement date) and whether this transaction includes the equivalent transfer of shareholder debt, if any in the company.
Furthermore, there is a requirement for any events material to the infrastructure firm to be logged; these include any breach of debt covenants and subsequent actions (events of default–both soft and hard– dividend lockups, cash sweeps, etc.), refinancing events, debt prepayment events, regulatory interventions or regulatory resets, and contract terminations. A full list of events that should be contributed is provided in the previous section.
The base currency for the accounts, debt instruments, and transaction data must be specified.
The rounding units for the financial statement information must be provided. All quoted percentages should be in the form of percentage points (i.e., 50.00, not 0.50), and the units of capacity should be provided.
For all contributed information from the financial statements any null values must be input as a 0, not left blank. For the income statement and liabilities, any negative values should be submitted as positive amounts. Any equity amounts that are negative should be entered as negative amounts.
All company-level attributes need to include a date that the attribute (i.e., business-model change) takes place. For initial reporting of attributes this should be the date of financial close.
All data types described here and in the previous section are, by design, readily accessible by infrastructure investors and available to be provided as part of their regular reporting processes.
Wherever possible, all contributions should be provided in English, however, where this is difficult, contributions can be provided in the native language of the contributor.