UK – Allianz Global Investors has downplayed construction risk in the target £1bn (€1.2bn) UK infrastructure debt fund it plans to launch at the end of Q2.

The fund – the first explicitly to take on construction risk – will invest in greenfield sites to develop hospitals and schools, roads and potentially offshore electricity transmission infrastructure.

Global head of communications John Wallace said the risks were "often overrated" for greenfield sites and could in any case be mitigated by a team with sufficient expertise.

"We're happy to take on the risk," he said. "It's a misnomer that the risks don't exist for those who take on brownfield sites, where there are still residual construction risks."

Wallace declined to comment on potential political risk following the publication last week of a parliamentary report that recommended significant changes to the UK's existing offshore electricity licensing regime.

The report criticised investors, including pension funds, for their reluctance up to now to take on construction risk.

However, Allianz Global Investors is understood to have been reassured by government statements welcoming private sector investment in UK infrastructure.

The impetus of the infrastructure debt fund came from its insurance sibling.

Wallace said the fund management arm would treat Allianz as a client, though he acknowledged a "strong core investor" had helped to attract other insurers, pension funds and sovereign wealth funds into the vehicle.

Few details were available this week of the fund manager's planned similar-sized infrastructure debt fund covering mainland European markets.

This closed-end fund is scheduled for launch this summer.

Meanwhile, the EDHEC-Risk Institute has suggested government guarantees that reduce construction risk for pension funds investing in infrastructure projects also damage returns.

In a new report, the French business school claims that government guarantees designed to protect investors from construction risk could in fact damage infrastructure investment returns.

The report claimed guarantees against endogenous risks such as cost overruns removed incentives to control them, citing median overruns in standard projects versus those with public sector guarantees as 0% and 20%, respectively.

Describing blanket guarantees as the result of "a failure to recognise that construction risk is mostly a function of who is exposed to it", the report claimed construction risk could in fact offer "a separate but related" investment opportunity because of the phase-related higher credit spread.

"[The] predictable credit-risk transition path suggests the opportunity to diversify infrastructure debt portfolios across the project life-cycle," it said.