32 TRADE & FINANCE
INFRASTRUCTURE:
A GLOBAL ASSET CLASS
“For life insurers, long-term
investment strategies, such as
infrastructure project investing, are
vital to our liability-driven portfolio
management process.”
Scott Sleyster, Senior Vice President & Chief Investment
Officer, Pramerica Financial, Inc.
The world faces a substantial and growing need for
infrastructure – and therefore for infrastructure investment and
financing. Traditional public infrastructure funding sources are
under pressure resulting in an estimated funding gap of $500
billion per year globally.1 Private sector funding sources are
needed if we are going to close this gap.
Prudential Financial, Inc., (NYSE: PRU), which does business in
Europe as Pramerica Financial, Inc., has been a significant provider
of long-term capital to a range of infrastructure programs for many
years. Our private lending business, Pramerica Capital Group, which
operates as Pricoa Capital Group in Europe and the U.K., manages
an infrastructure portfolio of more than $10.5 billion (as of June 30,
2015). In addition, we hold substantial infrastructure related public
debt and equity in our public bond and alternative assets portfolios.
For life insurers, long-term investment strategies, such as
infrastructure project investing, are vital to our liability-driven portfolio
management process. Well underwritten infrastructure investments
offer attractive risk, return and diversification characteristics, which
can contribute to better asset/liability management, and in turn,
stronger companies.
Is infrastructure an asset class?
No single definition of “infrastructure” exists within the investment
community. Infrastructure assets can range from “greenfield” public
works projects to public corporate bonds in telecom or energy
sectors. In general, infrastructure investments are categorised within
a range of traditional industry sectors and disciplines (e.g., energy,
power, transportation, telecommunications, ports, social housing)
instead of being distinguished by several principal characteristics.
First and foremost, investors tend to think of infrastructure as a long
duration asset class, and as such it suits investors with long-term
investment needs. Other characteristics beyond the nature of the
asset/project, include: illiquidity, often manifested in long investment/
draw periods, or, if debt, a lack of rating; complexity, requiring
specialised skills to analyse; and uniqueness, having few closely
comparable investments in terms of structure, assumptions, or
returns. Taken together, these characteristics – along with the types
of investors they tend to attract – might warrant categorisation as a
standalone “asset class.”
Why infrastructure assets have a place
in long-term investors’ portfolios
Infrastructure investment may provide unique benefits to long-term
investors’ portfolios with diversification and investment stability.
The supply of long-term assets (other than sovereign bonds) is
relatively constrained and in high demand. Infrastructure debt from
new issuers, whether governmental, quasi governmental or private,
represents a new source of investme