2.4 Price Data

Instrument prices are computed each quarter by Scientific Infra & Private Assets using a discounted cash flow approach and discount rates calibrated from primary debt infrastructure markets over time. 

The Broadmarket Private Debt Index is a calculated index. The prices used in the index are computed directly from available cash flow and market data using a unified asset pricing methodology. 

The market value of the constituents included in the index are computed using a discounted cash flow (or income) methodology, using company-level information to forecast dividend payouts and shareholder loan repayments. A factor model of expected returns is calibrated to reflect the latest market price of risk and to determine the appropriate discount rate.

Thus, at any time  we have:

where is the price of asset , paying until time . is the approximate expected yield to maturity (YTM) at time .

Market term structure data

• Interest rate data: Datastream®.

• Expected inflation data (for RPI-linked debt): Bank of England (derived from RPI-linked gilts).

• Interest rate and RPI data for each available horizon are interpolated using a standard methodology (see Asset Pricing Methodology) to derive a term structure of risk-free/inflation rates on each relevant future valuation date.

Cash flow data

For each debt instrument issued by an infrastructure company in the Scientific Infra universe, the following information is recorded on each reporting date: outstanding face value, the currency of the instrument, interest rate (if fixed), credit spread (if floating), benchmark rate (if floating), amortization profile and maturity date.

These instruments are collected along with other characteristics of the borrower and are categorised according to the TICCS® classification.

This data is then used to forecast the debt service of debt instruments at each point in time.

Spread data and mark-to-market modelling

Prices are computed by discounting the expected cash flows to maturity of each instrument on each pricing date, using a term structure of discount factors built with

1. the term structure of risk-free rates to maturity, and

2. an instrument-specific, mark-to-market credit spread.

The mark-to-market credit spread of each instrument, on each valuation date, is estimated from the decomposition of observable private infrastructure debt market spreads (mostly at origination) in terms of ‘priced risk factors’ i.e. factors that predict spreads well statistically. These factors include the instrument size, maturity (duration), TICCS® sector and business model control variables, etc. 

Once priced factors and their associated risk premia (e.g. the impact of size or maturity on spreads) have been documented over time, each risk premia can be used to derive a mark-to-market credit spread for any instrument given its characteristics i.e. given its size, maturity, TICCS® classification, etc. at the time of valuation.