Sometimes it can be difficult to distinguish between the motives and actions of governments and regulators, but when details emerged of the Solvency II Directive –pending European Union legislation designed to ensure the solvency of insurance companies – a very stark difference was all too clear.
On the one hand, politicians have in recent years been falling over themselves to laud the benefits of infrastructure development as a job creator and as both a present and future economic booster. On the other, the lawmakers’ new directive appeared to militate against infrastructure investment by parcelling it with other barely comparable asset classes such as venture capital and burdening it with a high capital charge.
The issue was not that the infrastructure asset class was seen by regulators as deserving of such treatment; it was simply – and just as worryingly – that it wasn’t seen at all. It had such a low profile that it was effectively the “Invisible Man” of alternative assets. Where real estate, for example, received its own separate treatment, infrastructure ended up caught in a widely-cast net that was no less damaging for not having its name on it.
It should be noted that, since the original Solvency II proposals were unveiled, the regulators have been prompted to bring about changes designed to make insurance investment in infrastructure easier. But the need to raise the profile of the asset class was noted and underlined, and plans began to be drawn up to make that happen.
One result was the recent launch of the Long-Term Infrastructure Investors Association (LTIIA), an initiative spearheaded by fund manager Meridiam Infrastructure. The body has revealed the identities of three of its founder members – Allianz, Skandia and the Development Bank of Japan – but it is understood to have signed up around 20 (with other names to be disclosed soon).
The association’s primary aim is to make sure that, in future, the infrastructure asset class is recognised and understood by the ‘public side’ (and not mixed up with anything else, to its detriment). Hence, the focus will be on key deliverables in areas that will assist definition. These will include, for example, infrastructure’s approach to responsible investing and ESG. Moreover, a Meridiam- and Campbell Lutyens-sponsored research chair at EDHEC Risk Institute is hard at work on devising a benchmarking solution for the asset class.
By taking practical actions of these kinds, it is hoped that the association will avoid being seen as some kind of talking shop or vacuous ‘grand plan’. The LTIIA estimates that it will need between 75 and 100 members paying an average of €15,000 a year to cover its operational costs – and is aiming to achieve this target by 2016. Coincidentally, that is also the year when Solvency II comes into effect – by which time it is to be hoped the regulators will view the asset class with fresh clarity.