We have seen that in Switzerland, which has a big, vibrant market with a strong flow of new issues. Some have government guaran- tees and some are infrastructure based, so the risk profiles are different. There is a well-es- tablished market, with a steady flow of money. It is not just talk; money is moving. Frith: Once you get beyond the greenwashing, the amount to which green bonds have been oversubscribed shows how much capital is out there looking for green-related opportuni- ties, but there will be demand for bonds with other risk profiles, too. Most of our members are well-funded pen- sion schemes and are looking for single digit returns. They are not looking for double dig- its. Why would they want to take the associated risks? Halfon: If you earn 3% with a low risk profile nowadays, you should consider yourself happy. Over the past five years, we are roughly at 3% for senior debt, which is safe and should be on the books of most mature schemes, because they must absolutely avoid any shortfall with retirees. Schemes want senior debt or other safe illiq- uid investments with low fees. Acquiring those risks is expensive and takes time. And yet some investors are not happy with 3%. The fact is that we cannot work miracles. There is a limit to what we can do. Farquhar: For


decades we had long-term


assumptions that were fixated on equities returning 3% over bonds. That is a dream now. But if pension funds can capture the attractive illiquidity premia on senior debt, which incidentally came through Covid with loss rates well below 1%, they could get much closer to the returns they need but are unlikely to see in their liquid public portfolios. You cannot have both.


What returns are you earning on green debt? Trow: It is becoming increasingly evident that people are looking at the greenium to decide if it is worth going through the rigma- role of investing. It is not uniformed; it is supply and demand. If fund managers are trying to match an index, they will snap up any new issuance so the greenium will be around 6 basis points, but I am not sure that gets you to where you want to be. One of the problems with the current investment horizon is the only way to make money is through capital gain, but we are


14 Dec-Jan 2022 portfolio institutional roundtable: Build Back Better


talking about projects that do not produce capital gains. Inves- tors need income that is sustainable over time, and many do not invest for that anymore because interest rates are so low. It is all about developing capital gains. We have created an environment where what we need to invest in is unfashionable. Rising asset values tell you the investment is not going to the right place. It is chasing the existing assets rather than creating new ones, which is what green infrastruc- ture is all about.


I do not know how you square that circle because we have cre- ated an expectation that there will be capital gains to make up for the lack of income from bonds. Frith: That is cultural in the UK. Other countries have traditional bond investor backgrounds. Trow: Part of it is also that we have got rid of the expectation


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