Financial investments involve an element of risk. For further information, please see the risk warning section.
Alternative income assets are becoming an increasingly important part of the lexicon for institutional investors. These private assets can provide enhanced returns for similar (or better) credit risk when compared to traditional fixed income investments, while many can also be utilised within cash flow-matching strategies.
Managing in excess of £21* billion in Alternative Income assets, Aviva Investors has the expertise to deliver a bespoke alternative income solution to meet each client’s specific objectives and requirements.
* Source: Aviva Investors as at 31 March 2017
Alternative income assets offer a pick-up in yield over traditional credit through accessing illiquidity and complexity premia inherent within the nature of these investments, which makes them particularly attractive for long-term investors such as pension schemes and insurance companies. They diversify counterparty risk away from traditional senior unsecured corporate bonds, and typically employ covenants and collateral to contain losses in the event of default.
The Alternative Income Solutions (AIS) Platform
Our AIS platform spans the following asset classes:
1. Infrastructure Debt
We define infrastructure as the physical structures, systems and networks that provide or support essential public services and which are subject to limited competition. This includes opportunities such as roads, schools, hospitals, ports, regulated utilities, rolling stock, energy generation and waste storage among others. We have been providing finance for infrastructure since 1998 making balance sheet investments for Aviva plc. The range and scope of our infrastructure debt investing has expanded considerably since then and we now manage over £4 billion1 of assets across a wide range of sectors in 10 countries. Our infrastructure debt investments are characterised by predictable cash flows that are supported by low operating risks, government regulation and long-term contracts.
2. Infrastructure Equity
This strategy focuses around the creation of ‘pseudo-fixed income’ assets in niche, low-risk sectors of social infrastructure such as schools and hospitals and low-carbon infrastructure, including renewable and energy efficiency projects. Investing in unleveraged infrastructure projects can achieve attractive risk-adjusted returns and provide a secure income alternative. Our approach of acquiring the whole of the capital structure in a transaction is unusual in the infrastructure market as investors generally concentrate on transactions of debt or equity. We can structure deals for assets which other investors might overlook, giving us a competitive advantage as it enables us to be a price maker, rather than a price taker. Our strategy allows us to generate predictable, long-term inflation-linked income streams from assets with terms up to 30 years with low economic risk.
3. Real Estate Finance
Real Estate Finance assists in financing the purchase or refinancing of commercial real estate such as offices, retail, industrial and logistics premises as well as assets such as hotels , student accommodation or healthcare facilities. Such debt can come in various maturities as it generally matches the nature of the lease attaching to the underlying property. It can offer attractive diversification away from typical corporate bonds, but with the added security of a physical asset as collateral.
4. Real Estate Long Income
Unleveraged long-lease real estate assets can offer long-term secure income streams with inflation proofing in the form of either inflation-linked rent reviews or fixed rental uplifts. These opportunities can be fully amortising or have reversionary features that allow for extension of the investment profile. The long-dated, predictable cash flows generated by such assets make them highly attractive for investors seeking to build a return profile that can potentially match long-dated liabilities.
5. Structured Finance
These are bespoke deals across an array of markets including trade and aviation finance and a wide range of other structured assets. Such deals are typically more complex than mainstream corporate bonds as the structuring involved helps to create an attractive investment opportunity. This is primarily through risk mitigation, but it can also be through adjustments such as altering the payment profiles to better fit an investor’s risk appetite. This category can also include niche asset types that may be difficult for most investors to access.
6. Private Corporate Debt
These are private placements and bilateral loans across a variety of sectors and issuers, ranging from investment-grade borrowers to small-to medium-sized enterprises (SMEs). This market is aimed at issuers that may be too small to access capital markets or seasoned issuers who may prefer smaller/club deals with a few institutional investors. Because the counterparties can be very diverse, successful investment requires the resources to conduct appropriate credit analysis and the expertise to understand the risks, both at the time of initial investment and also on an ongoing basis. The private nature of these deals means that while they generally offer a higher level of premia than comparable public deals, they can also offer additional risk mitigation through stronger covenants and reporting requirements.
Why Aviva Investors for alternative income assets?
1. Track record of investing in Alternative Income Assets since 1984 – Our insurance heritage has given us deep experience in originating, executing and the ongoing management of alternative income assets. We have a strong reputation in the market as a highly credible lender. This benefits our clients through access to our extensive pipeline of c£18bn2 across the AIS platform, encompassing a breadth of deal opportunities ranging from primary deal origination through to the largest deals in the market. We are:
a. Second in the UK for providing infrastructure debt3, and;
b. Have 5% market share of UK real estate finance4
2. A dedicated multi-asset investment team for alternative income assets, drawing on the breadth of our capabilities – Our team creates bespoke portfolios to meet client-specific requirements. They add value by:
a. Constructing portfolios tailored specifically to individual client needs, with a targeted risk profile
b. Improving returns through relative value decision-making across traditionally siloed asset classes
c. Reducing deployment times through accessing a wide set of opportunities
1 Source: Aviva Investors as at 31 March 2017
2 Source: Aviva Investors as at 31 March 2017
3 Source: InfraDeals 2016
4 Source: Aviva Investors / De Montfort University UK Commercial lending Report Mid Year 2016.
All of the asset classes above are available as a single or multi strategy through segregated or ‘fund of one’ routes. Alternatively, see below for a brief description on the pooled funds available.
Alternative Income Solutions fund
Focuses on providing exposure to a wide range of illiquid debt assets offering attractive risk-adjusted returns by exploiting relative value across Infrastructure Debt, Real Estate Finance, Structured Finance and Private Corporate Debt.
Infrastructure Income fund
Provides long term, inflation linked distributions through unlevered investments into low carbon and social infrastructure across sectors such as wind, solar, energy efficiency and biomass.
Aviva Investors European Corporate Senior Debt fund
Targets transactions offering superior risk-adjusted returns compared to traditional market transactions by providing funding to select midsize companies.