Infrastructure asset valuation method for investment decision-making

Abstract

In recent years, due to financial difficulties in maintenance, there has been a trend for the government to outsource infrastructure facilities to the private sector. In addition, coupled with the expansion of institutional investors and funds that can easily assume long-term and large-scale risks, infrastructure investment has been attracting attention as an asset class. Infrastructure investment is characterized by low correlation of returns with other asset classes and has an inflation hedge effect, and it is expanding in scale as an alternative asset, especially overseas. On the other hand, infrastructure facility projects are generally long-term and involve various uncertainties, making it difficult to accurately estimate the asset value. Therefore, asset value is largely determined qualitatively through discussions between contracting parties, and it is difficult to judge the rationality of the value from a third-party perspective. In this study, we propose an asset value evaluation method aimed at providing investment information by considering the "deterioration phenomenon" of infrastructure, which is a characteristic property of the asset class. Furthermore, we empirically analyze the effectiveness of the proposed method using data from actual infrastructure facilities.