Infrastructure debt – A capital-efficient building block for buy and hold insurer portfolios

Liability matching portfolio managers face the reality that their asset of choice, the investment grade corporate bond, no longer delivers sufficient yield. The hunt for extra yield this encourages is a concern: no one wants to repeat the mistakes of financial crisis when many insurance investors found themselves in apparently high-rated bond-like assets which did not end up delivering the cash flows required.

Infrastructure debt, we believe, is fundamentally different. We explain why this asset class may be considered to have superior credit fundamentals to the corporate bond sector. We demonstrate that historically infrastructure debt has produced stable long-term cash flows. We analyse the Solvency II capital treatment from a European insurer’s perspective and show that infrastructure debt ought to be able to provide investors with exceptional return on capital.