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Private Credit

Moving the Earth: The Power of Leverage

December 2021 - 8 min read

Infrastructure debt and private placements offer a number of potential benefits to insurance investors—from a potential spread premium to diversification and strong covenants.

One of my favorite classes in college was the “History of Mathematics,” as it combined two of my favorite subjects—mathematics and history. Archimedes, perhaps the greatest mathematical mind of the ancient world, is reported to have boasted that if he had a lever large enough and a place to stand, he could move the whole earth!

Without even thinking about it, we use physical leverage every day to accomplish tasks—even to do something as seemingly simple as hitting golf balls. In the broadest sense, to leverage something means to use it to its full advantage. In the case of financial leverage, both the lender and the borrower benefit from mutually advantageous terms to accomplish desired objectives. Infrastructure investments in particular combine both physical and financial leverage in the sense that financial investments lead to building essential assets in the hope of improving the quality of life—ideally using financial and human resources to the full advantage for mutual benefit.

Recently, we published an “Insurance Insights” piece discussing the potentially attractive characteristics of commercial mortgage loans (CMLs). Here, we will continue the discussion on private investment grade assets, with a specific focus on private placements and infrastructure debt, which offer a number of potential benefits such as:

  • Potential spread premium to public markets
  • Favorable cash flow characteristics/duration
  • Low default risk and losses
  • Diversification benefits
  • Strong covenants

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