Global Project Finance (GPF) investing is increasingly requiring strong skills on the side of the Arranger (the “risk allocator”) in order to realize adequate return benefits, while avoiding disproportionate risk that might preclude risk transfer. - Mark Tuminello

1. Global Project Finance –
Managing, Structuring
and Distributing Risk

2. Global Project Finance (GPF) investing is
increasingly requiring strong skills on the
side of the Arranger (the “risk allocator”) in
order to realize adequate return benefits,

3. while avoiding
disproportionate risk that
might preclude risk transfer.

4. GPF underwriters earn their “premium”
in a risk adverse financial world by
assuming risk (capital formation, risk
transfer and providing liquidity).

5. An emphasis on price
transparency and efficiency is
now becoming more pronounced.

6. Bank arrangers appear to be playing
an increasing role in the GPF
marketplace, primarily as providers of
liquidity, and as a risk transfer agency.

7. Investors can commit capital to a variety of
different asset classes (examples include
equity, fixed income, commodities, hard
assets and foreign exchange).

8. Investors are increasingly seeking to take
advantage of more flexible investment
opportunities in search of higher yield,
towards multiple asset classes, trading
styles and markets.

9. The attributes of investing in GPF,
traditionally a risk retention
investment approach, with term
take-out from the insurance market,

10. is now poised to have its asset
performance measured across
credit, market, liquidity and model
risk.

11. Improving the measurement of these
sources of risk should be a strategic
resource, guiding capital deployment
and risk syndication by banks.

12. In considering an appropriate retention
level, the maximum amount of economic
loss across the committed GPF investment
period (interim and term) must be
estimated.

13. Risk can only be priced
after it is appropriately
measured.

14. Analysis by Moody’s and Standard and
Poor’s reveals that recovery rates are
higher for term GPF exposures then
comparably rated corporate debt.

15. GPF strategies are risk-controlled,
diversified/long bias investments, focused
on project related assets (with some
commodity attributes, though more stable).

16. GPF is a low correlation
alternative investment
class.

17. Arrangers are increasingly sourcing and
identifying suitable underwriting and
principal investing opportunities that can
produce high risk adjusted returns.

18. More generally GPF appears to be low
frequency default risk, characterized
by certain sector defaults evidencing
high severity exposures.

19. Global Project Finance –
Managing, Structuring
and Distributing Risk