1.3 Index Construction

infraMetrics® indices and benchmarks measure the time-weighted returns of unlisted infrastructure companies. They are asset level indices computed as the weighted total returns of individual private companies that qualify as “infrastructure” under the TICCS® taxonomy. TICCS® stands for The Infrastructure Company Classification Standard (to find out more about TICCS® and its governance see this link). They are not fund manager performance indices but instead represent the performance and risk of the underlying market for private infrastructure equity investments in which fund managers and direct investors select assets. They complement fund manager performance data by providing an unbiased market reference that represents the infrastructure asset class as a whole before any fees, asset selection or market timing on the part of investors. 

Data

Company universe

infraMetrics® indices and benchmarks draw from a universe of 9k+ uniquely identified private infrastructure companies in 25 countries and across 33 infrastructure activity sectors, from which a representative set of 800+ potential index constituents are priced on a monthly basis using the latest market information going back 20+ years.

infraMetrics® market indices are built to represent the performance of different segments of this universe, while infraMetrics® benchmarks draw from the entire set of potential index constituents to produce different combinations of TICCS® segments and geographies. The respective weights of each segment and geography can also be customised to suit a given investor or fund.

Cash flows

The infraMetrics database contains historical financials of all the infrastructure companies in its universe, including the dividends paid out by infrastructure companies to equity investors, which is used as the source of the cash flow data.

Valuations

The index uses the monthly valuations of each infrastructure company produced in infraMetrics according to the asset pricing methodology. They reflect the valuations of infrastructure companies on a marked-to-market basis, thus ensuring that the benchmark always captures the latest market trends.

FX rates

The index in currencies (other than the local currency of each constituent) uses the FX spot rates (mid-point of bid and ask prices) sourced from fixer, which represent the rates as of the last weekday of each quarter. These FX rates are used to convert the cash flows and valuations from the constituent’s local currency to the base currency of the index.

Interest rates

Marked-to-market valuations require an updated term structure of interest rates every quarter in all geographic markets considered in the benchmark. We source the raw government bond rates with different maturities as of the last weekday of each quarter from Datastream (Refinitiv) and develop the interest rate yield curves to create full-term structures spanning all the maturities.

infraMetrics market indices

Our key infraMetrics® market indices include and are not limited to the infra300, infra100 and infraGreen index families, each of which is built to capture different aspects of the price dynamics of the private infrastructure market in a representative manner. The infra300 is the infraMetrics® flagship broad market index and used the most widely. The infra100 and infraGreen families are thematic market indices that represent different broad strategies such as Core, Core+, Project Finance, etc. The Market indices are recognised by the European Securities and Markets Authority (ESMA) and managed by an Index Committee ensuring the implementation of the methodology. [link to index methodology]:^[1]

The indices and benchmark data include index values and total or price returns in seven different currencies (AUD, EUR, GBP, JPY, CAD, USD and local currency) and are calculated using two weighting schemes (equal-weighted and value-weighted).

Market indices weighting schemes

Market indices weighting scheme

The infraMetrics indices are available with two weighing schemes

1. Equal weights: each constituent gets an equal weight in the index. These weights are rebalanced on the last date of the previous quarter:
   where,
   denotes the weight of the constituent at time
   denotes the number of constituents in the index

2. Value weights: the weights are proportional to the market capitalisation of the equity investment in the project. The weights are calculated at each rebalancing date using the following formula:
   where,
   denotes the weight of the constituent at time

   denotes the number of constituents in the index
   denotes the equity market capitalisation of constituent at time

Index-constituent value weights are calculated in the reference currency (USD) so that all constituent market values denominated in a different currency than the reference currency are converted accordingly.

Creating the index

Each underlying constituent’s historical valuations and dividends are converted from local currency to the base currency of the index using the historical FX spot rates. Then, total return of each constituent is calculated in the base currency as a combination of both price return and cash yield.

After this, the index return is computed as the weighted average of the constituent returns, and the weights are computed as per the previous section.

The index value is set to 1000 on the initialization date of each benchmark, following which the index values are computed using the computed total returns of the index.

Fair valuation

The fair value is estimated using a consistent asset pricing methodology. Index-constituent value weights are calculated in the reference currency so that all constituent market values denominated in a different currency than the reference currency are converted accordingly.

Value weights are capped so that the individual weights cannot exceed a 5% cap. This prevents any single constituent from having a disproportionate influence on the index. A limit is imposed whereby an individual constituent's weight is capped at 5%. Thereafter, the weights of the remaining index constituents are increased as a consequence of reducing the weights of the larger companies. The weights of the uncapped constituents are then checked and, if they exceed 5%, they are then also capped at 5%. This is an iterative process that is repeated until no company exceeds 5%.

Constituent entry and exit

Constituents enter the index universe, i.e. on the date of incorporation for greenfield infrastructure, or privatisation for existing firms or when the minimum required data becomes available, whichever is later. However, to be included in the index, either they have to satisfy the pre-defined rules or, for some indices, their inclusion is governed by the index committee.

Constituents exit the index if they reach the end of their planned life (project companies), are acquired and absorbed into another firm or cease to operate as a going concern (bankruptcy). 

Note on the evolution of constituents' financial structure

The same infrastructure asset could be considered under a different corporate entity over time as the financial structure of the business evolves. TICCS® guidelines suggest that the corporate entity to be considered should be the one that best represents the infrastructure business as a whole.  It cannot be pre-determined whether the HoldCo, BidCo or ProjCo should be considered. This is a matter of judgment to be exercised on a case-by-case basis, depending on the nature of these corporate structures. For example, if the HoldCo carries most of the debt related to the underlying investment (e.g. Heathrow) then it would be considered the most relevant level for the purpose of identifying or classifying infrastructure investments. If this changes over time, the initial entity (e.g. ProjCo) leaves the index and is replaced by the new one (e.g. HoldCo), which is uniquely identified.

Timing of changes

The index is reviewed on a quarterly basis by the index committee for new entries and exits.

^[1] All the indices’ market capitalisation and sector/country allocation are as of July 2024.