How the IFC is nudging insurers into infrastructure

The World Bank unit is de-risking investments as it pulls blue-chip investors into its emerging markets platform. Adalla Kim reports

The International Finance Corporation, a member of the World Bank Group, stepped up to help private institutions de-risk their infrastructure debt investments when it garnered $7.1 billion from eight global asset allocators for its Managed Co-Lending Portfolio Program in April. The organisation is also providing credit guarantees to the investors, which are looking at credit enhancement facilities.

As PDI reported at the time, the eight investors include six private insurers: Allianz, AXA, Liberty Mutual Group, Munich Re, Prudential and Swiss Reinsurance Company. Together they committed $3.1 billion to the MCPP, according to a disclosure from the IFC at the end of 2018.

A spokeswoman for Allianz Investment Management tells PDI that the MCPP is regarded as a great way of investing in challenging but strongly growing markets for its clients.

“We are constantly working on building partnerships with like-minded investors to broaden our emerging market private credit portfolio,” she says.

Higher ratings

Eugene Sullivan, principal investment officer at the IFC, told PDI at the FT Asia Insurance Summit in Hong Kong in October that his team had been focusing on helping insurers to access infrastructure investment across Asia.

He said the IFC was providing partial credit guarantees to underlying infrastructure assets in order to enhance their credit ratings to investment grade. The organisation’s activities in Asia encompass almost all developing countries in the region.

He pointed out during a panel discussion at the summit that many institutions were not looking to deploy significant capital to sub-investment grade infrastructure projects.

“So, at IFC, we are able to use our balance sheet to enhance infrastructure assets out of these [developing] countries to levels that are more palatable to investors,” he added.

As seen in the IFC’s co-lending platform investor roster, global insurers are willing to allocate capital to infrastructure debt across Asia.

Still, there are significant challenges for insurers when trying to match their long-term investment horizons with available investible assets in the region.

Shantini Nair, a London-based senior product specialist for infrastructure debt investments at HSBC Asset Management Group, raised a question about how to unlock longer-tenor financing beyond a seven-year timeframe through to 15 years. Nair said Asian insurers could play a major role in the region’s infrastructure debt landscape, including by helping to create more demand for project-financing bonds denominated in local currencies.

“That unlocks one of the pieces of the puzzle here, which is to fund the local balance sheets from the insurers [to make sure] we have demand for local currency project bonds that helps to create the demand,” she said. “If you will, it is a chicken-and-egg effect. This gives the developers the opportunity to match long-term fixed-rate funding with the long-term assets on the balance sheets.”