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The notion of fair value is a market-based measurement rather than an entity based measurement i.e. it is concerned with how average prices are formed in the most representative markets. In the language of academic finance, fair value is about betas i.e. the combined exposure of each firm to priced risk factors, but . It is not about alpha, which represents market outperformance and is the result of private proprietary or new information.

Once the relevant unit of account is known, fair value accounting requires the determination of a reference or ‘principal’ market.

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The notion of principal market under IFRS 13 implies that the market used to measure fair value is representative of buyers and sellers preferences. It is “the market with the greatest volume and level of activity for the asset or liability” [IFRS 13:Appendix A]. In other words, the point of reference for a broad market index of unlisted infrastructure should be those markets in which average or the most consensual consensus prices are best revealed.

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This point has direct implications for the definition of the relevant broad market universe used to compute the EDHECinfra broad market indices. The choice of universe for a broad market reference index aims to include those markets that are representative of the price preferences of independent, knowledgeable and willing buyers and sellers’ on the measurement date. In effect, a ‘broad market’ index aims to represent the principal market: a market with enough the one incorporating sufficient knowledgeable participants and transactions to reveal fair price signals. In other words, the broad market is the principal market that best represent the preferences of buyers and sellers of unlisted infrastructure investments.

In the case of unlisted infrastructure investments, certain national markets have been active for several decades and, over which this time, numerous primary or secondary transactions have taken place. For instance, in countries where public infrastructure was largely privatised in the 1980s, such as the United Kingdom, investors in unlisted infrastructure have been and remain more active.

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