Ignorance is Not Bliss
WSJ | Business May 31, 2021
The impact of Covid-19 lockdowns on the airport sector highlights a dilemma about how investors approach the valuation of private, illiquid infrastructure assets. On the one hand, there has been a clear, large shock to the revenues of airports that cannot leave the value of these companies unchanged. On the other hand, airports must retain some value because they are expected to pay dividends for another 30 or 50 years, and so losing a few quarters of revenue may not be that material.
Some will consider that, because airports are long-term illiquid investments, like the vast majority of other infrastructure assets, short-term events need not be taken into account. But is this a reasonable and coherent position if such events lead to a significant reassessment by the market of the perception and price of the risks of such investments? Like long-term bonds, infrastructure is often associated with hedging or matching liability risks, especially for pension plans. (read the concerning story here)