Today's Post

    Long-Term Infrastructure Debt: The Valuation Issue Three authors at EDHEC propose a two-step modeling process for the valuation of certain infrastructure debt. One of the key ideas they incorporate is the value of the step-in rights that come when the issuers violate a covenant or otherwise find themselves in technical default.

    The EDHEC-Risk Institute has issued a new paper on an old problem, how one can go about valuing infrastructure debt. The opportunities offered by infrastructure debt, especially the credit risk diversification it allows, are tempting. Still, these opportunities require entering a scary space. In an earlier paper, Blanc-Brude, the lead author here, argued that the world’s investors need reliable benchmarks for performance, and that the development of such benchmarks should be “high on the international policy agenda.” It is in the interest of the whole world, after all, that this space become less scary. This new paper, Unlisted Infrastructure Debt Valuation & Performance Measurement, is another in EDHEC’s continued research project. This paper focuses specifically on project finance (PF) loans, a “unique form of corporate governance that creates significant and extensive control rights for lenders through embedded options and debt covenants.” PF loans are not collateralized. But they do have a tail, that is, there is a period after the loan has reached maturity while the life of the infrastructure project continues, and ...

Featured Post

The Skorina Report: Another try at herding Gotham’s five-headed fund

Guest columnist Charles Skorina looks at the five-headed NYC pension system with its new leader, Scott Evans.

By Charles Skorina In July, Scott Evans reported for duty as Chief Investment Officer in New York City's Bureau of Asset Management, where he'll manage $160 billion in employee pension funds. Traditionally the city's CIO is replaced when the political wheel turns, which it did last fall. Retiring Mayor Michael Bloomberg was succeeded by William De Blasio; and Comptroller John Liu, the independently-elected custodian of the city's pension funds, was replaced by Scott Stringer. Mr. Stringer beat back a last-minute primary challenge from disgraced ...

One Ordinary Week in the Life of Climate Change

We thought it would be instructive to share with you links and the odd quote from recent press reports on the subject of climate change.  As a professional investor,  you no doubt want to be ahead of trends in the investment world.   Investment opportunities arise when there is a divergence of opinion, as is uniquely the case in the United States (unlike the other nations on Earth) on the subject of climate change.  The headlines of a few days tell ...

Guest Posts

Swiss National Bank Abandons Its Commitment to Support the Euro
John Brynjolfsson on Switzerland's slightly less than neutral stand on the Euro.

By John Brynjolfsson 1)      This morning's surprise announcement the Swiss National Bank (SNB) is first and foremost a SNB declaration of independence. Renounces ties to Euro explicitly. Implicitly renounces ties to ECB, Eurozone, European Court of Justice (which Rule yesterday in support of the ECB’s OMT, that is buying, of periphery debt), and Greek elections. Obviously Switzerland has a long history of remaining fiercely independent, whereas the 2 year old announcement of a floor had unwittingly become an unwelcome alliance of the country’s central ...


Macroeconomics: The Mainstream and the … Banks
The trade cycle is not a central concern of the reigning general-equilibrium models in macroeconomics. To the extent such models do consider booms and busts, they largely reject money or credit based explanations.

The mainstream in contemporary “macroeconomic” theory is defined by a particular sort of model, “dynamic stochastic general equilibrium” (DSGE). Such a model aims at a general equilibrium to the extent that it acknowledges that everything in the system depends on everything else. It is dynamic to the extent that it sees equilibrium not as a static fact, but as an always-vanishing goal, rather like the pseudo-rabbit used to get hounds to race each other around a track. It is stochastic in that it makes use of the randomness-friendly branch of calculus ...


On First Looking Into SEC’s Homer: A Final Rule on Swaps Reporting
Commenters successful pressed for certain changes in this massive new rule during its years of gestation. For example, the rule incorporates a T + 24 approach for the reporting of block trades. But warned, though, blizzards in NYC don't stop the ticking of that 24 hour clock.

The Securities and Exchange Commission recently issued its final rule on security based swap reporting, Regulation SBSR, meant to discharge a statutory mandate imposed by Congress in the Dodd-Frank Act of 2010. As the mere mention of the year 2010 may remind you, though, this regulation has been a long time a-coming. The SEC first proposed a Reg SBSR in November 2010. It re-posed it, thus re-opening the comment period, on May 1, 2013. The final rule is a long and dense read, as is fitting after such a wait. Here are ...

Real Estate

Focus on U.S. Real Estate Benchmarks: NCREIF Transaction Based Index

By Brad Case, PhD, CFA, CAIA This is the third in a series of articles focusing on the strengths of different indices that are published regularly and may be appropriate for benchmarking, risk assessment, and other real estate investment purposes. The first article focused on two similar index families, the Moody’s/RCA Commercial Property Price Index (CPPI) and the CoStar Commercial Repeat-Sales Index (CCRSI), both of which measure monthly capital appreciation at the property level. The second article focused on the NCREIF Property Index (NPI), which measures quarterly capital appreciation, income, and total return at the ...


A Basis for Pursuing the Pursuers? Sonar-based Whale Hunts
To the extent that high-frequency trading is analogized to 'insider trading,' it may be in trouble with securities regulators but still in the clear with commodities regulators. After all, the latter do allow hedgers to use non-public material information to protect themselves. But Gregory Scopino doesn't believe pinging and related HFT practices should be in the clear with the CFTC at all.

The special counsel of a division of the Commodity Futures Trading Commission suggests that “high speed pinging practices violate at least four provisions of the Commodity Exchange Act.” In the latest issue of the Connecticut Law Review, Gregory Scopino, special counsel of the division of swap dealer and intermediary oversight, includes the usual disclaimer, that his opinions as expressed in the article are his own “and do not reflect the views of other members of DSIO, other CFTC staff, the CFTC itself, or the United States.” Still, prudence certainly allows us ...


Tsipras Marched Bravely Forward And … Surrendered
The Greek prime minister's surrender to Germany and the troika has alienated much of his own base in Syriza. You can bet on it. Indeed, finding creative ways to bet on it looks like a sound alpha strategy now.

On Friday night, February 20th, the government of Greece under Prime Minister Alexis Tsipras agreed to the conditional financial rescue deal demanded by other Eurozone nations, especially Germany. As is customary in such circumstances, Tsipras declared victory. Even though I am familiar with that custom amongst politicians, I’m a little taken aback by the effrontery of this declaration. Victory? Yes, that’s what he called it, though in a bit of humblebrag he added that “we won a ...

Institutional Investing

Capital Call – Mastering 7 Essential Investor Questions
...One of the key hurdles all managers face is the investor interview, when the focus is not on the fund or strategy, but on the manager’s ability to sell him or herself. While managers are typically comfortable discussing their investment thesis and related activities, they are markedly less able to articulate the personal and intangible details about which investors want to learn more.

By Diane Harrison Although it’s early in 2015, investment managers are already feeling the pinch of making as many potential investor short lists as possible this year. One of the key hurdles all managers face is the investor interview, when the focus is not on the fund or strategy, but on the manager’s ability to sell him or herself. While managers are typically comfortable discussing their investment thesis and related activities, they are markedly less able ...


Down Memory Lane: That WTI-Brent Divergence
For one professor, the surprising divergence in the prices of WTI/Brent crude in the period 2010-2012 was a case study in how commodity prices can teach us about supply chain conditions. Faille looks back at his article, and forward past today's calmer but still-fluctuating spread.

Two and a half years ago, back when $90 a barrel was the bottom of the trading range for crude oil, John W. Bagby, a professor at Pennsylvania State, wrote a fascinating paper on “energy informatics,” that is, on the overlap of the energy industry and Big Data. His interest was inspired in part by the then-odd phenomenon of a discount of WTI vis-à-vis Brent. Bagby’s starting point was simply that energy production generates a lot ...


Eurekahedge Airs Wide Range of Views on Indian Hedge Funds
A new report from Eurekahedge tries to go beyond some obvious observations about the performance of hedge funds there in 2014, or about the performance of that country's broad economy last year. Eurekahedge talked to seven experts in the field. They took quite different views on the most basic of questions. So different that a contrarian would have a tough time finding the consensus to counter.

Eurekahedge has published a special report on Indian hedge funds. What it settled was that several interviewees who have studied the field closely and have a sound basis to judge what lies ahead for such funds have … very different things to say on the subject. What is Clear is… The numbers coming out of that space last year were impressive. The average Indian hedge fund was up 39.36%, outperforming the underlying markets by nearly 10%. Breaking that ...