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Swiss Life shifts gears on direct deals

Swiss Life Asset Managers head of infrastructure Christoph Manser tells us why going direct is crucial and why he still believes the UK is a good place to invest in.

Q: How do you position infrastructure in Swiss Life Asset Managers’ portfolio?

Swiss Life has positioned infrastructure equity as an alternative to its real estate and corporate credit portfolio. In turn, this has led to our team’s focus on the lower end of the risk spectrum – regulated businesses, long-term contracted businesses, PPPs and renewable energy in Europe and North America.

A key aspect of our strategy is our focus on direct investments. In our view, this is the only way to control the risk profile of your portfolio, especially since many fund managers have responded to the return compression happening over the last few years by moving further up the risk spectrum. While we have made a small number of fund commitments early on, the team has put the main emphasis from the beginning on direct investment – initially through co-investments, but increasingly as lead or co-lead investors or equal members in larger consortia.

With equity tickets of between €50 million and €200 million and a focus on minority investments, Swiss Life Asset Managers can provide a flexible source of capital. Another key aspect is our long investment horizon, which matches with our focus on core infrastructure investments.

Q: Will infrastructure play a bigger role in your portfolio over the coming years?

Over the last three and a half years, Swiss Life Asset Managers has built a team of 11 dedicated infrastructure professionals, which is expected to grow to 15 people over the next two to three years. Over the same period, the team has made 12 direct investments and has deployed around 55 percent of Swiss Life’s current SFr2 billion ($2.05 billion; €1.95 billion) target for infrastructure equity, with the goal to invest the remainder over the next two to three years. At that point, we expect that Swiss Life will continue to make further allocations to infrastructure equity. In addition to that, our team has been managing external capital from the beginning and we expect our third-party assets to become an increasingly large portion of our overall assets.

Q: What changes has Brexit already brought to the infrastructure market and Swiss Life’s investment plan?

A material portion of our portfolio is invested in the UK. So far, the Brexit vote has had a relatively small impact. This is clearly in line with the performance of the UK stock and credit markets. The main effect from the vote is cleaarly that it induces a level of uncertainty about the future growth of the economy and the direction of policy making towards Brexit and thereafter.

However, we believe the UK will stay open for business and will continue to be an attractive place for foreign private investments, as the dealflow of compelling investments should continue to be strong. In the infrastructure space in particular, we believe the UK will continue to play an important role for institutional investors thanks to strong dealflow. Hence, the infrastructure team will continue to look at interesting opportunities in the country, especially the ones we believe to be more isolated from a potential slow-down in the economy.

Q: Which sectors and countries are expected to present good investments in the next 12 months?

Our focus will continue to be on sectors and businesses that tend to be less exposed to the economic cycle, such as regulated utilities, transportation assets with limited volume risks and select renewable energy assets which provide good yield and attractive total returns. Our focus will remain in Europe, where we continue to see strong dealflow, and North America.