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Infrastructure debt - is there something like too much of a good thing?

Author: Imogen Ribus
by Imogen Ribus
Posted: Feb 16, 2019

Lots of investors are lining up to put money into infrastructure debt which is making fund managers bigger but this is also causing a dilemma. The debt in infrastructure is becoming a sought after asset allocator list and this is meaning that those investing into the centre have a lot of capital but need more projects to invest into that have terms that are acceptable.

Pension funds are one of the main investors. The pension funds wanted to substitute the coupon income because of the yields on low fixed income. The debt allows them to have a cash flow on a long term basis. Rates are a lot higher than fixed income which means that the bonds that are low yield are able to increase during the pension timescale.

In just three years the infrastructure debt is a market that is maturing which is a great opportunity for credit seniority and inflation protection. The influx of pension fund capital has caused pressure on the margins but the project availability with the right credit criteria is poor.

56% of people in intuitional investment are concerned mostly with rising valuations. 43% worry about deal flow in relation to pricing. 30% are concerned about the unlisted vehicles performance. Despite this there are still many looking to invest with the pension sector being in the right position? 315 billion euros are to be invested from Asia and Juncker Plan over a time period of between two and three years with an additional promise which is to generate more projects that are going to need finance for their debt.

With pension funds making the commitment to invest in infrastructure strategies for debt management some managers have already decided to move into sub-investment instead so that they can deliver premium yield over the corporate debt that is expected by pension investors.

There is talk of trying to push pension funds into reducing the ‘risk appetites’ to maintain the financial support as well as the responsibility for any shortfalls in funding. The potential of the flow in capital is significant. It is estimated that EU pension fund shifts of funds could account for up to 10% of the fixed income assets from infrastructure. Other direct lending is though to come to around 500 billion euros. This will mean that those advising in pension funds should get themselves up to date with the opportunities available.

MIDIS has managed to use the Macquarie’s infrastructure experience to cover big areas of the pension fund. Larger scale plans were the first to enter however plans of varying sizes are now being tapped into. It is going to take a lot of hard work to create lenders that are attractive enough for sponsors to want to partake despite higher costs. For the negotiation to be optimised the returns have to be high with lower risks. This means that every deal in the market cannot be taken on.

This article was written by Sequoia

Sequoia is a London based Investment Advisory firm. Sequoia considers itself a specialist in infrastructure debt asset management. We spend a majority of our time, to find optimal infrastructure debt investments to help and increase our investment portfolios. Sequoia's Directors is considered some most seasoned investment professionals in the Uk with a combined experienced of over a 100 years.

at Sequoia we work side by side with investors and advisors to improve efficiency in investing in infrastructure debt. Our investment asset match up with the latest fund regulations and legal laws of the investment ordinances.

we provide easy access to infrastructure debt to all investors. Infrastructure debt can offer a yield premium and diversification benefits and we use proprietary strategy to meet investor risk-return objectives.

About the Author

Financial Sector Deeping Trust is a Tanzanian based financial services offering company. With more than 10 years of experience in offering digital finance, Insurance, Agricultural & Rural Finance.

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Author: Imogen Ribus

Imogen Ribus

Member since: Nov 23, 2018
Published articles: 2

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