Aviva Investors launches infrastructure debt fund to target bank loans
EUROPE – Aviva Investors has secured €425m of investment for the launch of a new infrastructure debt fund.
The European Secondary Infrastructure Credit Securitisation Vehicle reached a first closing at €425m, securing capital from three European insurance companies, including Aviva France.
Philippe Gravier, CFO at Aviva France said: "This fund is not only an investment opportunity for our life insurance portfolio, it is also about supporting public utility by investing in the real economy on long-term projects."
With this new fund, Aviva Investors will primarily seek to acquire infrastructure bank loans in the secondary market.
The fund will also make "selective" investments in the primary market.
Aviva Investors said it would focus on operational infrastructure projects that have demonstrated a very low level of credit loss.
The vehicle, which will have an average life of 7-12 years, will target core infrastructure assets across Europe, taking a low-risk approach in public buildings, transport, transmission, distribution and renewable energy.
Aviva Investors' fund will target investments of at least €10m over a period of two and half years.
Laurence Monnier, infrastructure fund manager at Aviva Investors, stressed that banks had engaged in a "huge amount" of infrastructure lending over the last 10 years but were now keen to shrink their balance sheets and shorten the duration of their assets.
"This offers investors the opportunity to access a new class of secure long-term debt at an attractive return," she said.
"This new product allows investors to diversify their credit portfolio with exposure to senior loans in the infrastructure asset class at a higher yield than is available from investment-grade corporate credit, yet arguably with lower risk."
A number of insurance companies have looked into the opportunities arising with the sale of infrastructure loans by banks in the past.
But most of the deals have failed to take off.
In a past interview with IPE, Georg Grodzki, head of credit research at Legal & General Investment Management, highlighted a number of issues surrounding such loans.
According to him, restructuring or re-engineering bank loans that are often designed to suit the needs of banks is a "laborious" exercise.
He also pointed out that loans on banks' books usually carried a floating rate, whereas institutions preferred fixed rate or index-linked bonds.
Additionally, when looking to acquire such infrastructure loans, institutional investors have generally found their credit quality too low to suit their needs and have failed to agree on a price with the seller.
IPE and Stirling Capital Partners are co-hosting a conference, Infrastructure for Pension Funds and Other Capital Owners, to take place on 2 October in London. For more information, visit www.ipe.com/infrastructure.