Research - JUNE 17, 2020

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Qualifying infrastructure under Solvency II and CRR II, ESG and COVID-19

by Jegor Tokarevich and Prof. Dr. Jens-Eric von Düsterlho, SOF Infrastructure Ltd.

Regulated financial investors such as banks or insurers invest into infrastructure assets for various reasons such as diversification, stable cashflows or excess returns through illiquidity premiums. At the same time, those investor groups are subject to extensive and dynamic regulatory frameworks such as Solvency II or CRR I/II. Recent developments in the area of sustainable finance/ESG as well as COVID-19 are also covered by the regulations. GPs aiming to raise funds from regulated LPs need to understand how those requirements are interconnected and optimize them accordingly.

Solvency II, qualifying infrastructure and long-term equity investments

Insurance companies in the European Economic Area (EEA) are regulated by Solvency II. Infrastructure equity investments are usually classified as type 1 or type 2 equities and are subject to basic equity charges of 39 percent to 49 percent. If an insurance company regularly assesses those assets based on the

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