BearingPoint Institute: infrastructure debt financing at 8 year low, 75% of insurance firms planning to step in
London/Frankfurt, November 7, 2013 – Infrastructure spending in Europe has fallen off a cliff, down over 60% since 2007. Against this backdrop, experts polled by BearingPoint agree banks and governments cannot fulfill investment needs, so with a deficit of public works growing by the day, where will Europe’s infrastructure funding come from? Working with key players across the sector, the BearingPoint Institute has helped to form strategies.
The BearingPoint Institute article “Are insurers the new banks for infrastructure investments?” is based on surveys and interviews with 55 banks, asset managers and institutional investors conducted in partnership with Infrastructure Journal. Launched today, the results paint a stark picture. Europe’s project finance volumes are lower than they were in 2005, 86% of investors find banks are unwilling or unable to finance long term projects, while governments have been side-tracked by deficit reduction measures and Eurozone instability. In their place, insurers are poised to provide the much needed infrastructure finance, but why now?
Infrastructure as an asset class offers high returns with comparably low risk
Put simply, insurers have their own problems. The traditional asset classes they have relied on for income have all but dried up. Typical Government bonds, for example now yield only 1 to 2%. Infrastructure as an asset class offers much higher returns with comparably low risk, high resilience, stable cash flow and a very good match for the duration of the liabilities faced by the insurer. In fact, 90% of the BearingPoint survey respondents cited this stable cash flow as the most appealing aspect of infrastructure investment.
But this white knight isn’t galloping to the rescue quite yet. Over half the insurers surveyed (56%) are uncomfortable investing in the capital intensive construction phase of infrastructure development, with most preferring to step in and buy the debt as an investment during the operational phase (60%). It is also interesting to compare the risk perceptions of banks and asset managers against insurers and pension funds when assessing specific industry sectors. According to the study’s findings, the top choice (100%) for the banks are renewable energies (a new and riskier sector), while only 53% of insurers currently invest in this field.
BearingPoint’s five strategies for going to market with an infrastructure project:
- Joint venture between insurers and banks
- Bank as asset manager, insurers providing the funding
- Insurer as asset manager of an infrastructure debt asset
- Independent asset managers offering infrastructure debt to the open market
- Direct investment from insurers
Patrick Maeder, Partner and firm-wide insurance segment leader at BearingPoint:
“For risk averse asset managers like insurers, investing in infrastructure is a step into the unknown. It will take a leap of faith on their part but the resultant benefits are clear. If issues of transparency, liquidity and capital adequacy can be overcome, infrastructure debt investments offer a very attractive risk/return profile for insurers. The current backlog of developments provides an unprecedented opportunity for insurers to step in and benefit from the void left by banks and governments. However, this is a complex environment which requires meticulous planning and preparation. Fortune favors the brave and there is no better time for the insurance white knights to ride to the rescue of European infrastructure.”
To read more about how insurers can derive the returns they need from infrastructure investment, please download the BearingPoint Institute paper “Are insurers the new banks for infrastructure investments?”, which can be found at www.bearingpoint.com
- Infrastructure Journal website
- Download the app for: iPad on iTunes | Amazon for Android | Google Play
- Watch the YouTube video
- Infographic on visual.ly
About the BearingPoint Institute
Founded in 2009, the BearingPoint Institute is an incisive, authoritative voice on business-critical topics, which brings together the finest minds from both within and outside the BearingPoint organisation. We strive to:
- Advise business leaders to understand the evolution of the global economy at a deeper level
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- Studies made by experts illustrated with real-life highlights
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