In a new survey of institutional investors and service providers entitled “Fair Value or Fair Guess? Inside the Engines of Infrastructure Valuation,” the EDHEC Infrastructure & Private Assets Research Institute (EIPA) raises significant questions about valuation practices in the private asset industry. The survey provides clear evidence of variability and inconsistency in valuation practices among investors in unlisted infrastructure assets.
Key Findings:
- Fragmentation in the methodologies employed within the industry, such as forecasting cash flows, terminal value estimations, and discount rate calibrations. This diversity hampers comparability across investment vehicles, presenting challenges for investors, regulators, and stakeholders in assessing true asset values and investment performance.
- Conservatism in valuations, with most respondents consistently achieving higher exit prices than their internal valuations, predominantly reflecting premiums ranging from 6% to 20%. This reveals a potential structural bias within valuation methodologies, calling into question the accuracy and reliability of interim valuations and their alignment with fair value.
- Limited responsiveness among investors to changing market conditions, with only a third actively adjusting valuations during market stress periods. This rigidity could lead to valuation smoothing, masking volatility and creating risks for accurate performance measurement and risk management.
- The lack of consensus on the appropriate application of financial models, especially the Capital Asset Pricing Model (CAPM), further underscores the uncertainty in the industry regarding suitable valuation techniques for private infrastructure assets.
Key Recommendations:
- Given the above findings, there is an urgent need for enhanced governance frameworks and standardised valuation protocols to foster transparency, comparability, and investor confidence.
- Regulatory bodies and industry stakeholders should actively pursue the development and implementation of clearer valuation guidelines, incorporating explicit calibration of discount rates, rigorous validation of management inputs, and proactive responsiveness to market dynamics.
The full publication can be found here:
Fair Value or Fair Guess? Inside the Engines of Infrastructure Valuation, EDHEC Infrastructure & Private Assets Publication, June 2025.
