Why Allianz Partnered with the IFC for Infra Projects

Political uncertainty is taking a toll on infrastructure funding in emerging markets. But a unique new investment program from the World Bank offers low risk and high returns, and Allianz is taking part.

In emerging markets infrastructure investing, risk abounds: risk of unending red tape, risk of corruption, risk of a change in government. That’s one reason global spending on infrastructure is only half of the $2T that’s needed every year.

It doesn’t have to be this way. The International Finance Corporation (IFC), the private-sector investment division of the World Bank, has since 2000 delivered annual average returns on its equity investments in emerging market infrastructure of more than 20 percent.

It wants to share the wealth. The IFC has launched a new venture called the Managed Co-Lending Portfolio Program to raise $5B from global institutional investors to fund new infrastructure in emerging markets—and reap solid returns.

The IFC will originate, approve, and manage the portfolio of loans and enable the third-party investors to participate passively in the IFC’s infrastructure portfolio. To encourage participation, the IFC is offering investors first-loss protection, which means the IFC will absorb any initial losses in funded projects.

Global insurer Allianz is the first to sign. Under the agreement, Allianz will invest $500M, which will be channeled into IFC debt financing for infrastructure projects in emerging markets.

“In a low-yield environment, it is key to follow new routes for our investments to serve our customers’ needs for sustainable returns,” said Claus Fintzen, CIO and head of infrastructure debt at Allianz. “The partnership with IFC is a perfect example of how we as investors can serve the interests of our customers and contribute to society at the same time.”

According to the partnership, Allianz can’t choose the infrastructure projects it funds, but it has selected parameters by which the IFC will originate, structure, and administer the loans.

“Infrastructure transactions in emerging markets face different risk profiles compared to developed markets,” Fintzen says. “As a consequence, senior debt in emerging market infrastructure transactions generally provides higher returns. The first-loss provided by the IFC was, therefore, an important structural feature.”

Unlike Allianz’s investment strategy in Europe and the U.S., where it has invested large amounts into single transactions, its emerging markets strategy relies on diversification of small investments in a large, global portfolio.

Each country has its own unique political, regulatory and business environment, says Fintzen, and the IFC’s expertise is critical to minimizing risk. The IFC has experts on the ground in 95 countries around the world, and its special creditor status as a member of the World Bank helps limit negative outcomes from political or regulatory changes.