Portfolio construction using InFRAME™

IFM’s unique approach portfolio construction for to infrastructure is based on InFRAME™, a proprietary methodology that draws upon our 18 years of experience in infrastructure investment. InFRAME provides bottom-up analysis of infrastructure revenues and recognises the variety of risk characteristics that occur within infrastructure sub-sectors. The methodology quantifies an infrastructure portfolio according to the five key qualities that IFM believes core infrastructure encompasses: monopoly characteristics, longevity, stability of cash flows, inflation protection and linkage to economic growth.

Benefits of the InFRAME™ approach

  • A deeper understanding of the risk profile of infrastructure within an investment portfolio.
  • Quantitative insights into the way infrastructure assets respond to macro-economic drivers and scenarios.
  • Development of a strategic asset allocation based upon infrastructure revenue characteristics.

Download IFM’s InFRAME White Paper

Learn more about IFM’s portfolio construction methodology by downloading our InFRAME white paper.

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The reasons for InFRAME™

Traditional approaches to portfolio risk analysis are dependent on historical performance and correlation data. InFRAME enables a greater “bottom up” perspective on portfolio risk exposures and characteristics. This is important in an asset class like infrastructure where the risk of profile of assets is largely related to their revenue characteristics.

The three phases of InFRAME™

InFRAME™ has three interlinked phases: risk profiling, scenario analysis and portfolio optimisation.

  1. Risk profiling of revenue streams
    Risk profiling provides a bottom-up assessment of risk at the asset and portfolio levels. InFRAME identifies constituent revenue streams for each asset, it classifies these based on a defined set of representative revenue types, and groups these according to price and volume risk characteristics. The analysis of revenue types allows us to identify common risk factors and risk concentration.
  2. Defining core infrastructure
    The portfolio risk profile allows us to quantify what a “core” strategy looks like. IFM targets investments in core infrastructure assets which typically possess qualities such as monopolistic characteristics, long life, stable and predictable revenues, inflation protection, exposure to economic growth.
  3. Scenario analysis and optimisation
    InFRAME™ employs a holistic, scenario-based approach to risk to guide strategic asset allocation within an infrastructure portfolio, rather than an approach dealing with single point sensitivities. The underlying principle is that the portfolio should be sufficiently robust to provide an acceptable return under a range of economic scenarios. This approach involves examining the effect of macro-economic scenarios on the equity returns for representative portfolio assets. Portfolio weightings are then optimised to ensure minimum return thresholds are met over the range of scenarios considered.

InFRAME™ analysis is an integral part of IFM’s investment process. Although the concepts and tools developed are tailored to unlisted infrastructure, elements may be applicable to other asset classes within an investor’s portfolio.