AIA is considering making investments into infrastructure loans and the China-led Belt and Road infrastructure initiative, reflecting a trend among insurance firms to allocate more to private debt.
“We’re starting to do a bit more in infrastructure, such as exploring direct loans, and engaging third parties to assist,” Mark Konyn, group chief investment officer at the Hong Kong-based insurer, told AsianInvestor. “We are looking at individual opportunities rather than commingled funds at this stage.”
“On Belt and Road, we’re active in understanding how we can participate to get access to some of the opportunities if they’re appropriate for some of our businesses.”
AIA already has some $20 billion of its $171 billion under management allocated to infrastructure debt largely through direct holdings of corporate bonds, said Konyn.
But it does not have any exposure to private real estate debt, he noted. “Typically loans to developers tend to be shorter-dated and lower-quality or they are floating-rate, and we prefer fixed.”
Separately, the insurer has increased its private equity allocation in the past three years, though it remains below $2 billion and is held almost exclusively via funds.
Declining to give a likely time frame for making moves into infrastructure loans, Konyn said: “We’re not in a hurry; we’re not making a big top-down allocation decision here. We aim to enhance the credit exposure and will consider opportunities on a case-by-case basis.”
AIA has taken a similar approach to structured credit, Konyn said, in that it has built a programme over the past several years that is managed in-house and focuses on the very high-quality end of the asset class.
AIA tends not to make big asset allocation changes that would expose portfolios to market timing-related risks, he added. It takes a strategic view on every asset class, and the decision to outsource and select a manager follows that view.
Meanwhile, interest in the Belt and Road initiative from a large, respected international investor such as AIA should help attract more potential allocators to emerging-market infrastructure that many institutions have seen as too risky.
Announced by President Xi Jinping in 2013, the initiative is designed to strengthen intra-regional integration and commerce between China and countries in Eurasia and beyond. It incorporates at least 68 countries across Asia, Europe and Africa and covers projects from roads and railways to ports and power plants.
It has been a global trend generally among insurers in recent years to build their exposure to infrastructure both on the debt and equity side, as long-term, income-producing assets.
European players have been earlier movers, but Asian firms are also showing interest in dollar-denominated infrastructure debt and would like to see more local-currency assets available, said Andries Hoekema, global head of insurance at HSBC Global Asset Management.
Prudential Corporation Asia has built an in-house infrastructure team over the past four years and has been making commitments on both debt and equity, noted Asia CIO Stephan van Vliet.
But infrastructure financing would draw more flows from insurers in the region if private debt were more attractive in certain markets, he argued. Malaysia imposes high capital charges on the asset class, he said, while Vietnam does not allow insurers to invest in such strategies or do direct financing at all.
AIA's Konyn is already well versed in infrastructure investment challenges. He sits on an advisory board for French business school Edhec in Singapore that looks at ways of providing indexes for the asset class.
Ultimately, the infrastructure assets are not very liquid, he noted. “How do you provide an index that measures performance of an asset that’s only periodically valued – typically at the start and finish of a project? There’s not a lot of valuation that goes on that’s verified during the development of the asset.”
Edhec has published research that uses cross-sectional data to maintain an overall infrastructure index and utilises new projects’ data, said Konyn. “This level of price discovery and transparency helps to make the asset class more accessible.”
Of course, the work requires investors to collaborate and disclose data, and will require regulators to recognise the benefits, he added.
Look out for an in-depth feature in the upcoming August/September issue of AsianInvestor magazine on how insurers are reviewing their investment allocations in the face of looming risk capital rules and accounting standards.