PIDG has invested USD 6.4m catalytic capital and provided a USD 35m guarantee to strengthen the risk profile and participation from institutional investors in the Infrastructure Resilience Development Fund.
We had been discussing for some time opportunities to work together to mobilise private sector capital. Things on IRDF really started shaping up after more focused discussions almost a year ago during Ecosperity about how to deliver meaningful impact through innovative dealmaking.
It enables insurance funds to invest in a fund with an underlying portfolio of BB-rated, sub-investment-grade assets, without the benefit of a make-whole provision. It was also structured as an end-of-fund-life guarantee rather than a point-in-time guarantee. Our cover was focused purely on credit risk, making the risk allocation very specific. The mobilisation impact is significant: the second-loss partial guarantee of USD 35m enables a fund of c. USD 750m.
This was a first-of-its-kind transaction for us. We had to spend considerable time explaining the structure to stakeholders and building a shared understanding of how the risk-return profile should be evaluated. The guarantee could only be called at the end of the fund’s life, so the assessment had to look across the full fund horizon of 16 years rather than a single moment in time.
We are currently working on several fund transactions and since this transaction was first announced earlier this year, we closed another fund transaction with Clifford Capital and received enquires about other transactions across several geographies that we are considering. We are therefore confident that this structure can be replicated where there is a clear mobilisation case, a strong underlying portfolio, and a risk allocation that allows institutional investors to participate at scale.
Given the complexity and the number of stakeholders involved, I think the outcome was a strong one. That said, we could look to simplify and better coordinate the negotiation process. The transaction involved many parties across multiple jurisdictions and time zones, and documents governed by different laws. If I did this deal again, I would aim to bring all the stakeholders in a room for a week to conclude the negotiations in a more streamlined way.
