Two weeks ago, I spent several days mingling with infrastructure investors, consultants and managers at our Institutional Investing in Infrastructure conference. It was truly an international crowd — Canada, the United States, the United Kingdom, Germany, Switzerland, Australia, France, Turkey, India and other countries near and far were represented. It was easy to pinpoint who was from where by listening to their accents.
It made me think about language and about how a country is united and defined by its language. We’ve all heard that there is no word for “no” in Japanese. Not sure if that particular example is true, but which words are used or not used does convey a lot about a culture.
Asset classes also have their own languages with words specific to their culture.
Stocks have their P/E ratios, exchanges and EV/EBITDA
Bonds have tranches, basis points and LTVs.
Real estate has cap rates, lease-ups and mark-to-market.
But what terms are specific to infrastructure? There don’t appear to be any, and therein lies the rub. Without its own language, is it really an asset class?
Those investing in infrastructure have all come from some other industries, and all bring their terminology with them. When pension funds first started investing in infrastructure, borrowing familiar language was an efficient way to help investment boards understand the investment possibilities being presented. But as the class has emerged, it has become apparent that several of the terms borrowed from other classes aren’t quite right for infrastructure.
For example, most of the industry talks about core, value-added and opportunistic investments to explain where the investment falls on the risk spectrum. These terms are widely used in the real estate asset class, and so have simply been adopted by infrastructure. But those coming from an investment class other than real estate might not understand the implications of a risk- or return-based nomenclature. One investor who was plucked from his pension fund’s oil and gas group to run a new infrastructure allocation asked me why those terms were used. The only real answer is that a lot of people in the industry are comfortable with them.
But now it might be time to look for terms that better fit what infrastructure is meant to do in a portfolio. Some of the infrastructure-specific terms that are beginning to gain acceptance are defensive, defensive-plus and extended to replace core, value-added and opportunistic. These terms fit the role of infrastructure more closely than the real estate terms.
Others are sure to follow. Or are they already out there? What infrastructure-specific terms does your organization use — or you wish were used? If we get enough responses, we’ll put together a directory and try to give infrastructure its own language, just as it deserves.
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Sheila Hopkins is managing director – Europe and infrastructure with Institutional Real Estate, Inc.
