Unlevered Infrastructure Equity: Delivering in CDI

Cashflow-driven investing (CDI) generates predictable, attractive cash flows to meet liabilities when they fall due.

Although a wide range of reliable, income generating assets can be included within a CDI strategy, discussions about which alternative asset classes to include are often limited to private debt, particularly infrastructure and real estate financing. At a stretch, some investors might also consider long income real estate, but unlevered infrastructure equity (i.e. assets acquired without leverage or third party borrowing at the asset level) is almost always ignored – and unfairly so.

We say ‘unfairly’ because high-quality unlevered infrastructure equity has the potential to deliver exactly what cashflow-driven investors – such as pension schemes – are seeking: low-risk, index-linked cash flows that are suitable for liability matching.

Infrastructure assets provide essential services. As the need for utilities, transport, energy and health facilities is ever-present, and as assets often operate under de facto monopolies or regulated regimes, the best assets can produce stable income flows throughout economic cycles. This makes them potential candidates for CDI.

We acquire assets without leverage or third party borrowing at asset-level in low-to-medium risk, income generating assets. The intention is to deliver attractive, regular cash flows with debt-like risk.

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Key risks

Investment risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Investors may not get back the original amount invested.

Illiquidity risk

Where funds are invested in illiquid private assets, investors may not be able to redeem any units in the fund when they want because illiquid private assets may not always be readily saleable. If this is the case we may defer a request to redeem units.

Credit risk

Bond values are affected by changes in interest rates and the bond issuer's creditworthiness. Bonds that offer the potential for a higher income typically have a greater risk of default.

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (“Aviva Investors”) as at 5 January 2020. Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The investments mentioned within this video are intended to be for illustrative purposes and should not be considered as investment recommendation.

The information contained in this document does not constitute explicit or implicit actuarial advice.

Issued by Aviva Investors Global Services Limited, registered in England No. 1151805. Registered Office: St Helen’s, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority and a member of the Investment Management Association. Contact us at Aviva Investors Global Services Limited, St Helen’s, 1 Undershaft, London EC3P 3DQ.