Infrastructure debt

Infrastructure debt is the fixed income component of infrastructure assets. It is a complex investment category reserved for sophisticated institutional investors who can gauge jurisdiction-specific risk parameters, assess a project’s long-term viability, understand transaction risks, conduct due diligence, negotiate (multi) creditors’ agreements, make timely decisions on consents and waivers, and analyze loan performance over time.

Research conducted by the World Pensions Council (WPC) suggests that most UK and European pension funds wishing to gain a degree of exposure to infrastructure debt have done so indirectly, through investments made in infrastructure funds managed by specialized UK, Canadian, US and Australian funds.^[1] Sequoia Investment Management Company, based in London, has launched Sequoia Economic Infrastructure Income Fund targeted at fund managers and institutional investors.

On 29 November 2011, the British government unveiled an unprecedented plan to encourage large-scale pension investments in new roads, hospitals, airports… etc. across the UK. The plan is aimed at enticing 20 billion pounds ($30.97 billion) of investment in domestic infrastructure projects "over the next decade", which could mark the beginning of a new wave of pension fund investment in infrastructure in the UK.

Infrastructure debt is also an expanding asset class for Australian pension fund investors. Fund managers that operate in this space include AMP Capital (www.amp.com.au), Infradebt (www.infradebt.com.au), IFM Investors (www.ifminvestors.com) and Westbourne Capital (www.westbournecapital.com.au).

Ratings agencies increasingly recognise the attractive credit characteristics of infrastructure debt including lower ratings volatility, lower defaults and higher recoveries than equivalently rated non-financial corporate debt.

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