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Mariner Investment closes $450m in new infrastructure investment strategy

Tuesday, January 21, 2014
Opalesque Industry Update - Mariner Investment Group, the global alternative asset manager, announced that it has closed on two new client mandates, launching Mariner Infrastructure Investment Management (MIIM), Mariner’s bank deleveraging and regulatory capital management investment business. MIIM serves as portfolio manager for two investment vehicles: the International Infrastructure Finance Company Fund, LP, a $350 million comingled fund (IIFC), and Mariner Breakwater, LP, a $100 million fund-of-one. MIIM aims to take leveraged exposure to loans, bonds, and other debt instruments associated with global infrastructure, energy, and transportation assets. Target investments are designed to enable banks to manage their balance sheet in light of new financial regulations, providing them with risk-transfer tools that optimize and enhance their regulatory capital and funding requirements.

Mariner established MIIM in an effort to capitalize on the opportunity set created by two significant investment themes: tightened Basel III standards which have caused a dramatic shortfall in regulatory capital at banks, likely to persist over the next several years, and an urgent need for additional infrastructure finance in markets around the globe.

The MIIM team’s primary investment strategy will provide credit protection against certain losses in specific infrastructure loan portfolios. Mariner selects assets for these investments based on strict credit underwriting criteria, coordinated by a highly experienced in-house team with significant infrastructure investment expertise. By working with Mariner on the provision of credit enhancement on a loan portfolio, a bank may typically reduce its Basel III risk exposure, freeing up its balance sheet to be redeployed by the bank to help grow businesses or to off-set other capital needs. In exchange for providing the loss protection, the participating vehicle and its investors would typically expect to receive a portion of the loan spread for the life of the credit protection.

“Our new infrastructure investment mandates provide global project finance banks with innovative, customized, and attractive solutions for the management of risk weighted assets in their infrastructure, power, and transport loan books, thereby addressing a critical and unmet need within the financial sector,” said Bracebridge Young, Mariner’s Chief Executive Officer. “We're hopeful that the uptake will be strong; on the back of IIFC's initial close, we have already completed our first investment with a major European project finance bank.”

Commitments to our initial products and investor mandates reflect strong investor interest. Investors include a diverse group of institutional investors, including public and private pension funds, a large charitable trust, and affiliates of Mariner for their own accounts. Over a half dozen institutional investors participated in the initial capitalization of the vehicles, the majority of which are first time investors with Mariner.

Mr. Young continued: “Mariner will continue to provide our investors with an attractive, timely, and value-added investment opportunity, reflecting our unique combination of asset class expertise and structured credit know-how. In addition, like all of our investments, this line of business is supported by Mariner’s rigorous, best-in-class risk management and strong credit culture.”

MIIM’s management team is led by Andrew Hohns, who oversees a group of six dedicated investment professionals with more than 90 years of combined experience in infrastructure finance.

Dr. Hohns commented: “The magnitude of the capital requirements for banks substantially exceeds available capacity in equity markets. Banks are currently developing alternative strategies to meet these stringent new demands, and this business initiative is designed to be a flexible partner to banks to assist them in meeting the new requirements. From an investor standpoint, we have initially focused on providing these solutions with infrastructure as the target asset class because of its relative stability: we build our fundamental underwriting views on a number of factors with a particular focus on good historical credit experience, consistently low default rates, and high recoveries across a range of market cycles, regions, and industry sectors.”

Mariner Furthers its Commitment to Socially Responsible Investment
The launch of this business serves as a further demonstration of Mariner’s on-going commitment to impact investing, both indirectly and directly. The strategy's investments are designed to enable banks to expand their lending to the infrastructure sector by freeing up regulatory capital for balance sheet growth, while at the same time, Mariner has committed to donate five percent of the management fee it receives from this investment strategy to the UNICEF Bridge Fund, a financial tool that enables UNICEF to fast-track lifesaving assistance for children in emergency situations.

Mr. Young commented, “An important and intended by-product of this business venture is to facilitate substantial new infrastructure finance and development. We believe that this urgent need can be addressed in part by freeing up additional bank capital to fund vital projects around the globe, but this alone is unlikely to meet infrastructure needs in less developed places. To that end, we decided to allocate a portion of our management fee from the strategy to the UNICEF Bridge Fund in recognition of the needs of children in these areas.”

“We applaud Mariner for its dedication to socially responsible investing and for its support of UNICEF’s efforts to save and protect children living in the most dire of circumstances,” said Edward G. Lloyd, Chief Operating Officer and Chief Financial Officer of the U.S. Fund for UNICEF, which created and manages the UNICEF Bridge Fund. “Mariner’s commitment to allocate a percentage of its management fee to the UNICEF Bridge Fund represents an innovative model for financial institutions and investment funds—one that will pay dividends for vulnerable children all over the world by helping ensure medicine, vaccines, therapeutic food, and other vital supplies reach those in need as quickly as possible.”

Today’s announcement is the latest demonstration of Mariner’s commitment to supporting socially responsible investment. This past fall, Mariner became a signatory to the United Nations-supported Principles for Responsible Investment (PRI) and announced that it would begin to incorporate environmental, social, and governance (ESG) research, ratings, and screening tools into one of the firm’s more significant client mandates.
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