ABL Life accelerates PPP infrastructure drive

The $20 billion South Korean lifer intends to fortify its real asset portfolio with more infrastructure assets in public-private partnerships as part of its search for reliable yields.
ABL Life accelerates PPP infrastructure drive

If anything good can be said to have come out of the pandemic, it is that the outbreak has reaffirmed Jiroo Eoh’s belief in investing in infrastructure assets via public-private partnerships (PPP). 

Eoh, the Seoul-based head of infrastructure and real asset investments at ABL Life, told AsianInvestor in an exclusive interview that, after the coronavirus unleashed its destruction on the global economy, the lifer is now more confident that PPP assets will be able to provide robust and predictable cashflows for the company while providing downside protection against unexpected events. 

“We have pinpointed some managers who focus on PPPs and we are gearing a lot of investments with those managers soon as well,” Eoh noted, without elaborating further with which managers ABL Life has engaged. 

He added that the lifer has not decided by how much it will raise its allocation to PPP assets as this is still under discussion. 

The PPP funding model allows private sector companies and investors to help construct, maintain and operate public infrastructure projects. The most common example is a build-operate-transfer contract, in which a private company finances and operates an infrastructure project before transferring back to the public sector after a set period.   

"It's very important for investors like us to focus on good cashflows, so when we do overseas equity investments we focus more on PPP assets," Eoh said.

The $20 billion Seoul-headquartered insurance company currently has around 20% of its portfolio allocated to real assets. The majority of ABL Life's real asset portfolio gears towards infrastructure assets, with domestic and debt investments constituting the bulk of the pot. He declined to comment on the specific allocation figures within the real assets portion.  

Overall, the firm’s infrastructure exposure spans toll roads, power plants, renewables and railways, with an emphasis on operating assets.  


When it comes to further PPP investments, Eoh added that social infrastructure projects including data centres, as well as assets located in Australia will be among ABL Life’s top priorities. 

“Australia has a very strong PPP regime,” he said, “There are a lot of precedents that we can follow. Returns have been proven, plus there are good Australian managers that can do well in these markets.” 

Indeed, Australian PPP assets have drawn interest from sophisticated investors. Canada's Caisse de dépôt et placement du Québec, for example, announced the acquisition of a 24.9% stake in the Sydney Metro train, system, operation and maintenance PPP contract in November last year. 

But more importantly, infrastructure investments are going to be one of the key yield-drivers for Korean insurers under the country's low-rate environment, according to a Moody’s research paper published on July 29. The Bank of Korea reduced interest rates by a further 25 basis points to 0.5% in late May after a striking 50bp cut in March.  

Infrastructure investments – which are typically longer-dated – will also aid local insures’ asset-liability management as they brace for the upcoming implementation of the IFRS global accounting standards and K-Insurance Capital Standard

Rick Wei, head of Asia ex-Japan insurance strategy at JP Morgan Asset Management, said previously that most Korean insurers "must lengthen their asset duration to reduce asset-liability duration mismatches", with the trend expected to continue for the rest of this year and well into next year.
Eoh added that the firm is likely to look to take extra risks and venture into greenfield infrastructure investments as well, if “the sector is right, the region is right and the price is right”. 
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