Investment - Articles - Accessing the illiquidity premium - an emerging opportunity

 The 2011 edition focuses on the illiquidity premium and an opportunity for pension funds and insurance companies to step into the funding gap created by the tightening of the public purse and capital-constrained banks. Specifically, it looks at two ways institutional investors can access this premium.

 ·         Infrastructure: In recent years, pension funds have become increasingly interested in infrastructure. The paper sets out the different ways and investment vehicles through which pension funds can access this asset class.  Infrastructure is an example of a “Flight Plan Consistent Asset” (FPCA), offering an inflation-linked alternative to matching and growth assets.

 ·         Secured funding transactions: Many pension funds have considerable excess liquidity. The paper discusses how they can take advantage of this by lending liquid assets such as gilts to banks in return for a premium. By capturing this illiquidity premium and with the right governance structures in place, they can derive a source of additional returns.

 A second instalment of the Spring/Summer Collection 2011 to follow will cover social housing and renewable energy, further examples of FPCA.

 Please download the PDF to view the entrire Spring/Summer Collection 2011