To ensure that infrastructure remains a low-risk component of its overall portfolio, Velliv, Pension & Livsforsikring (Velliv) targets efficient portfolio exposure through core/core-plus funds. The infrastructure portfolio currently consists of 16 funds with significant diversification that requires internal management. The strategy is a top-down bottom-up process based on a core satellite approach with open-ended funds as its foundation.

The top-down element refers to Velliv’s market approach whereby it builds diversification and concentration frameworks and interacts with managers and analysts to determine any head or tail winds it needs to consider. The strategy is continually adjusted and is designed to identify the most future-proof sectors and geographies.

The bottom-up element involves ongoing portfolio projection and gap analysis on the existing portfolio versus the overall infrastructure strategy and diversification framework to ensure that the infrastructure portfolio is appropriately aligned.

The core approach refers to Velliv’s commitments to four well-diversified open-ended funds that act as a strategic tool at the centre of the infrastructure portfolio. Managing a core approach allows Velliv to increase or decrease exposure to illiquid infrastructure faster than it can achieve otherwise across the entire strategy and all vintages, while open-ended funds offer immediate access to well yielding and well-diversified portfolios that avoid the J-curve.

The satellite element concerns the remaining 12 funds, which are closed-end and viewed as more tactical. They are selected to provide the portfolio with additional return drivers thanks to more opportunistic timing based on the market conditions and outlook at the time of investment.

The size of commitments varies depending on strategy and the attractiveness of the target investment, but they are normally within a range between €40m and €100m to ensure adequate diversification while reducing concentration risk. Managers are handpicked based on their reputation and other credentials. Moreover, Velliv only invests in newly established managers in exceptional circumstances.

STRATEGIC TAKEAWAYS

MAPFRE launched its first infrastructure fund of funds and co-investment in 2020, raising €325m in a record three-month campaign, despite the drawbacks of Spain’s unique market characteristics. Its second fund venture was the launch a year later of the MAPFRE Energías Renovables I, a co-investment fund with Spanish leading renewables company, Iberdrola. This fund initially invested in nine wind farms that have since grown to 12. This was followed in 2023 by the creation of the second fund in its renewable series, MAPFRE Energías Renovables II. This vehicle targets the development of biogas and biomethane plants, mainly in Spain. It pursues a diversified investment strategy based on three key metrics: geography and location; feedstock; and final client, including the potential to commercialise gas in other European markets.