The lower charges attach to qualifying assets the insurer can see, not to the fund's label, and they take only part of the symmetric adjustment.
At 30 per cent if the underlying assets are qualifying infrastructure investments, 36 per cent if they are qualifying infrastructure corporates, and 49 per cent as type 2 equity if they are not, or if the insurer cannot look through the fund. On an illustrative 150.0m infrastructure equity fund that is 45.0m of capital instead of 73.5m, and the return on capital of an 8.50 per cent fund rises from 17.35 to 28.33 per cent.
Worked in full in Insurance Capital for Asset Managers by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Infrastructure is the one equity class for which the standard formula sets its own, lower charges. They do not attach to the label on the fund. They attach asset by asset, to underlying holdings that meet the qualifying criteria, and only when the insurer can see those holdings. A manager who assumes the whole fund takes 30 per cent usually overstates the relief.
| Input | Value |
|---|---|
| Allocation / expected return, net of fees | 150.0m / 8.50% |
| Type 2 equity (no look-through, or non-qualifying assets) | 49% + SA |
| Type 1 (closed-ended, unleveraged EU AIF, not looked through) | 39% + SA |
| Qualifying infrastructure investment (project entities) | 30% + 77% of SA |
| Qualifying infrastructure corporate | 36% + 92% of SA |
| Look-through mix: projects / corporates / other | 60% / 30% / 10% |
Charge = base rate + share × symmetric adjustment (SA), by category of each underlying asset
Capital = Σ (value of the assets in each category × its charge)
In Excel, with the look-through shares in B2:B4 and the charges in C2:C4: =Size*SUMPRODUCT(B2:B4,C2:C4), and each charge as =Base+Share*SA.
| Treatment | Charge | Capital | Return on capital |
|---|---|---|---|
| Type 2 equity | 49.00% | 73.5m | 17.35% |
| Type 1 (eligible closed-ended AIF) | 39.00% | 58.5m | 21.79% |
| All qualifying infrastructure corporates | 36.00% | 54.0m | 23.61% |
| All qualifying infrastructure investments | 30.00% | 45.0m | 28.33% |
| Look-through mix, 60 / 30 / 10 | 33.70% | 50.55m | 25.22% |
The fund earns 12.75m a year whatever the treatment. Only the capital moves. Qualifying project entities save 28.5m against type 2, qualifying corporates 19.5m, and the difference between the two, 9.0m on this allocation, is why the classification of each holding matters as much as the headline.
Few funds hold only qualifying project entities. In the illustrative mix, 90m of project entities take 27.00m, 45m of corporates take 16.20m and 15m of non-qualifying assets, a platform company or a stake that fails the criteria, take 7.35m at type 2. The blended charge is 33.70 per cent: 50.55m of capital, 22.95m less than type 2, but 5.55m more than the 30 per cent the pitch deck tends to quote.
The non-qualifying slice weighs more than its size. At 10 per cent of the value it is 14.5 per cent of the capital. A fund half made of non-qualifying assets, with the rest in projects at 30 per cent, would already be charged more than an eligible closed-ended AIF at 39 per cent: the break-even is a 47.4 per cent non-qualifying share.
What the manager can do about the blend is mostly a matter of data. A look-through inventory that classifies each holding as a qualifying investment, a qualifying corporate or neither, with the evidence behind each classification, is what lets the insurer apply the lower charges at all. A holding the insurer cannot classify is charged as if it failed. Qualifying infrastructure debt has its own, reduced treatment in the spread risk sub-module; that is a separate calculation from the equity charges here, and it rests on the same evidence.
Qualifying infrastructure takes only part of the symmetric adjustment, 77 per cent for investments and 92 per cent for corporates, so it moves less than type 2 as markets swing.
| SA | Type 2 | Qualifying investment | Qualifying corporate | Blended mix | Saving, investment vs type 2 |
|---|---|---|---|---|---|
| −10 points | 39.00% | 22.30% | 26.80% | 25.32% | 25.05m |
| −5 points | 44.00% | 26.15% | 31.40% | 29.51% | 26.78m |
| 0 | 49.00% | 30.00% | 36.00% | 33.70% | 28.50m |
| +5 points | 54.00% | 33.85% | 40.60% | 37.89% | 30.23m |
| +10 points | 59.00% | 37.70% | 45.20% | 42.08% | 31.95m |
The saving grows from 25.05m to 31.95m as the adjustment rises, because the type 2 charge takes all of every point and the qualifying charge only 77 per cent of it.
Charge each underlying asset by its category, 30 per cent for qualifying investments, 36 for qualifying corporates, 49 for the rest, and add 77 or 92 per cent of the symmetric adjustment where it applies. On the illustrative fund that is 33.70 per cent, not 30, and the evidence pack per asset is what earns the difference. The charges, the infrastructure sheet and the lever register are in the free workbooks for this case.
The investment category covers project entities meeting the Article 164a criteria and is charged 30 per cent plus 77 per cent of the symmetric adjustment; the corporate category covers companies meeting Article 164b and is charged 36 per cent plus 92 per cent. On 150.0 million the gap is 9.0 million of capital at an adjustment of zero.
No. The qualifying charges apply to underlying assets the insurer can identify and evidence. Without a look-through inventory the holding is charged as type 2 equity at 49 per cent, or 39 per cent for an eligible closed-ended, unleveraged EU AIF: 73.5 or 58.5 million on 150.0 million instead of 45.0.
Partly. Qualifying infrastructure investments take 77 per cent of it and qualifying corporates 92 per cent, against all of it for type 1 and type 2. At an adjustment of plus 10 points the qualifying investment charge is 37.70 per cent, not 40.00, and type 2 is 59.00 per cent.
This article is one calculation from Insurance Capital for Asset Managers. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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