Client Type: Asset Manager
Sector: Institutional Asset Owner / Structured Credit
Location: Europe
Challenge:
A global infrastructure fund was deploying capital into a 20-year energy project in an emerging market. While the power purchase agreement (PPA) provided USD-denominated revenues, the project faced multiple other market risks:
- Initial capital deployment and some ongoing operational costs in local currency
- Exposure to USD-denominated project debt with long duration
- Repatriation risk for returns distributed back to the fund
- Minor but material listed equity exposure to local partners
The fund required a capital-efficient, governance-compliant hedge overlay to mitigate risk across multiple asset classes and timeframes.
Solution:
- FX Risk Management:
- Used FX NDFs and options to hedge local currency entry points and operational outflows
- Structured rolling repatriation hedges to protect against FX volatility impacting fund-level IRR
- Rates Hedging:
- Applied a USD interest rate swap overlay to stabilise long-term debt servicing costs
- Considered cross-currency swaps to synthetically align some debt service with blended local/global cost structures
- Equity Exposure:
- Used long-dated equity index put spreads to manage downside exposure to local partner stakes while controlling premium outlay
- Delivered a phased hedge strategy aligned with construction, ramp-up, and operating cash flow phases
Result:
- Protected investment returns from FX timing mismatch and repatriation shocks
- Locked in more predictable debt service costs over 20 years
- Reduced volatility from local equity exposure
- Improved internal liquidity planning and IC confidence
- Enabled greenlighting of the project with a defensible risk framework
Value Delivered:
Converted a multi-risk, multi-market infrastructure exposure into a capital-efficient, risk-contained investment, preserving performance, governance alignment, and portfolio liquidity across the full asset lifecycle.