# 1.4 Price Data

Asset prices are computed each month by *Scientific Infra and Private Assets* using a discounted cash flow approach and discount rates calibrated from secondary market infrastructure equity transactions over time.

The *Scientific Infra and Private Assets* Broadmarket Unlisted Equity 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 internal rate of return (IRR) at time .

## Cash flow data

For each company included in the index, the minimum required data described in the Data Collection Standard is collected, aggregated , and categorised according to the TICCS® classification.

This data is then used to produce several forecasts:

A Revenue Forecast is determined by human analysts and cross-validated;

A Total Debt Service Forecast is determined by human analysts and cross-validated;

A Cash Flow Available for Debt Service (CFADS) forecast is made using a statistical model that takes the revenue and debt service forecasts as inputs;

A Free Cash Flow to Equity Retention Rate (RR) forecast is made using a statistical model that takes into account future debt service and the lifecycle of the company.

Future dividends are derived as:

Each company's dividend forecast at time is then used to compute a price using a discounted cash flow model, which takes two other inputs: a term structure of interest rates and a risk premia.

## Market rates term structure data

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

Interest rate data: Datastream®.

## Risk premia data

The mark-to-market risk premia applicable to each company to be priced on each valuation date is estimated by **observing secondary market** **internal rate of return** (IRR) and statistically estimating the effect of certain systematic risk factors, e.g., size, leverage, profits, etc., as well as TICCS® sector and business model control variables.

where is the price or premia of each risk factor, is the factor loading or exposure of company to factor , and is the measurement noise introduced when estimating .

Once these risk premia have been estimated over time, each one is used to derive a mark-to-market risk premia for each individual company, i.e. given its size, leverage, profits, TICCS® classification, etc., at the time of valuation.

The prices of all infrastructure equity stakes obtained using this approach are then used to compute the asset-level performance and risk metrics.

Index data and analytics are then computed using these results.