What Makes Infrastructure Debt Attractive to Pension Funds
Interview with: Andrew Robertson, Co-Head, Macquarie Infrastructure Debt Investment Solutions
Montreux, Switzerland, May 14, 2015
About the European Pensions & Investments Summit 2015
The 15th annual European Pensions & Investments Summit is the ultimate meeting point, bringing elite buyers and sellers together. The Summit offers regional pension investors and international fund managers and consultants an intimate environment for focused discussion of the key new drivers shaping institutional asset allocations. Taking place at the Fairmont Le Montreux Palace, Montreux, Switzerland, 8 – 10 June 2015, the Summit includes presentations on capturing attractively valued investments, increasing fund resilience, tail risk management and making responsible investing a reality.
For more information please send an email to press@marcusevanscy.com or visit the event website at www.epi-summit.com/AndrewRobertson_Interview
marcus evans group – investment sector portal
The Investment Network – marcus evans Summits group delivers peer-to-peer information on strategic matters, professional trends and breakthrough innovations.
LinkedIn: www.linkedin.com/groups?gid=3937929&trk=hb_side_g
YouTube: www.youtube.com/MarcusEvansInvest
Twitter: www.twitter.com/meSummitsInvest
SlideShare: www.slideshare.net/MarcusEvansInvest
Please note that the Summit is a closed business event and the number of participants strictly limited.
Interview with: Andrew Robertson
Why should pension funds allocate some capital to infrastructure debt? How?
In addition to liability matching and returns, infrastructure debt provides investors access to assets that enjoy increased protection from normal business cycles, and are therefore less correlated to other asset classes and provide diversification of risk.
In the case of pension schemes that rely on corporate sponsors, the ability to hold assets with lower correlation to the financial strength of the sponsor is also attractive.
How do the investment returns on infrastructure debt compare against long-term sovereign and high quality corporate bonds?
We believe that it compares favourably when evaluated against corporate bonds of a similar credit quality. According to a Moody’s report in 2013, recovery on default has been almost double the level achieved on senior secured corporate bonds. Higher yields can be earned on infrastructure debt due to substantial barriers to entry in the sector. Investors are a
lso rewarded for being able to hold less liquid investments on a buy-and-hold basis.
What are some of the risks associated with investing in this space?
Infrastructure assets can be characterised by the following features: regulated revenues for essential services (e.g. water); stable legislative backgrounds providing government-guaranteed tariffs (e.g. high quality renewables); or revenues received directly from users of infrastructure which hold an inherent position of competitive advantage (e.g. airports).
As such, political and regulatory risks, which are often present where the provision of infrastructure services involves an ongoing commitment from a government agency, are a key consideration when investing in the debt of these kinds of assets.
There should also be significant focus on the capabilities of the operator of the infrastructure asset, as well as unmitigated construction risks in the case of greenfield projects.
One must also ensure that the appropriate structures are in place to mitigate the risks. These include borrower covenants (e.g. dividend restrictions), restrictions on business activities, ability to replace counterparties, enforcement triggers and insurance.
The complexities involved with evaluating these kinds of risk underline the importance of having a thorough understanding of operating across a wide range of jurisdictions and sub-sectors.
Any final words of experience?
Seek to identify a competitive advantage and capitalise on it. For example, a significant proportion of long-term lending to infrastructure projects is now being provided by insurance companies. Our experience is that pension funds are less constrained by regulation (e.g. Solvency II) which presents opportunities to achieve a competitive edge by tailoring lending solutions more closely to the needs of borrowers.
Contact: Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division
Tel: + 357 22 849 313
Email: press@marcusevanscy.com
Macquarie Group (Macquarie) is a leading provider of banking, financial, advisory, investment and funds management services. Founded in 1969, Macquarie employs more than 13,900 people in 28 countries. At 30 September 2014, Macquarie had assets under management of EUR 295 billion.
In early 2012, Macquarie established the Macquarie Infrastructure Debt Investment Solutions (MIDIS) platform to leverage the infrastructure expertise within Macquarie into an investor-aligned global infrastructure debt investment management business. The MIDIS platform has been successful in securing mandates with prestigious insurer and pension scheme clients and has a track record of investing at attractive yields. Since March 2014, it has raised total commitments in excess of GBP 1 billion for its UK inflation linked debt strategy, which includes separately managed accounts and a pooled fund.
www.macquarie.com/midis
Interview with: Andrew Robertson, Co-Head, Macquarie Infrastructure Debt Investment Solutions
Montreux, Switzerland, May 14, 2015
About the European Pensions & Investments Summit 2015
The 15th annual European Pensions & Investments Summit is the ultimate meeting point, bringing elite buyers and sellers together. The Summit offers regional pension investors and international fund managers and consultants an intimate environment for focused discussion of the key new drivers shaping institutional asset allocations. Taking place at the Fairmont Le Montreux Palace, Montreux, Switzerland, 8 – 10 June 2015, the Summit includes presentations on capturing attractively valued investments, increasing fund resilience, tail risk management and making responsible investing a reality.
For more information please send an email to press@marcusevanscy.com or visit the event website at www.epi-summit.com/AndrewRobertson_Interview
marcus evans group – investment sector portal
The Investment Network – marcus evans Summits group delivers peer-to-peer information on strategic matters, professional trends and breakthrough innovations.
LinkedIn: www.linkedin.com/groups?gid=3937929&trk=hb_side_g
YouTube: www.youtube.com/MarcusEvansInvest
Twitter: www.twitter.com/meSummitsInvest
SlideShare: www.slideshare.net/MarcusEvansInvest
Please note that the Summit is a closed business event and the number of participants strictly limited.
Interview with: Andrew Robertson
Why should pension funds allocate some capital to infrastructure debt? How?
In addition to liability matching and returns, infrastructure debt provides investors access to assets that enjoy increased protection from normal business cycles, and are therefore less correlated to other asset classes and provide diversification of risk.
In the case of pension schemes that rely on corporate sponsors, the ability to hold assets with lower correlation to the financial strength of the sponsor is also attractive.
How do the investment returns on infrastructure debt compare against long-term sovereign and high quality corporate bonds?
We believe that it compares favourably when evaluated against corporate bonds of a similar credit quality. According to a Moody’s report in 2013, recovery on default has been almost double the level achieved on senior secured corporate bonds. Higher yields can be earned on infrastructure debt due to substantial barriers to entry in the sector. Investors are a
lso rewarded for being able to hold less liquid investments on a buy-and-hold basis.
What are some of the risks associated with investing in this space?
Infrastructure assets can be characterised by the following features: regulated revenues for essential services (e.g. water); stable legislative backgrounds providing government-guaranteed tariffs (e.g. high quality renewables); or revenues received directly from users of infrastructure which hold an inherent position of competitive advantage (e.g. airports).
As such, political and regulatory risks, which are often present where the provision of infrastructure services involves an ongoing commitment from a government agency, are a key consideration when investing in the debt of these kinds of assets.
There should also be significant focus on the capabilities of the operator of the infrastructure asset, as well as unmitigated construction risks in the case of greenfield projects.
One must also ensure that the appropriate structures are in place to mitigate the risks. These include borrower covenants (e.g. dividend restrictions), restrictions on business activities, ability to replace counterparties, enforcement triggers and insurance.
The complexities involved with evaluating these kinds of risk underline the importance of having a thorough understanding of operating across a wide range of jurisdictions and sub-sectors.
Any final words of experience?
Seek to identify a competitive advantage and capitalise on it. For example, a significant proportion of long-term lending to infrastructure projects is now being provided by insurance companies. Our experience is that pension funds are less constrained by regulation (e.g. Solvency II) which presents opportunities to achieve a competitive edge by tailoring lending solutions more closely to the needs of borrowers.
Contact: Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division
Tel: + 357 22 849 313
Email: press@marcusevanscy.com
Macquarie Group (Macquarie) is a leading provider of banking, financial, advisory, investment and funds management services. Founded in 1969, Macquarie employs more than 13,900 people in 28 countries. At 30 September 2014, Macquarie had assets under management of EUR 295 billion.
In early 2012, Macquarie established the Macquarie Infrastructure Debt Investment Solutions (MIDIS) platform to leverage the infrastructure expertise within Macquarie into an investor-aligned global infrastructure debt investment management business. The MIDIS platform has been successful in securing mandates with prestigious insurer and pension scheme clients and has a track record of investing at attractive yields. Since March 2014, it has raised total commitments in excess of GBP 1 billion for its UK inflation linked debt strategy, which includes separately managed accounts and a pooled fund.
www.macquarie.com/midis
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