Infrastructure debtOpportunity for long-term stable cashflows and portfolio diversification
Infrastructure assets have historically been correlated to the general market and essential assets are generally less exposed to economic cycles
Infrastructure debt offers the potential for attractive returns due to the complexity and illiquidity premiums
A sustainable way to support economic development through a positive contribution to climate change, energy transition and digitalisation
What is infrastructure debt?
Tighter banking regulations and liquidity requirements have limited the traditional sources of financing for infrastructure debt – leading the market for private infrastructure debt deals to expand. This market is made up of senior and junior debt, with the latter being particularly attractive for UK institutional investors looking for attractive risk/return profiles, secure cashflows and strong diversification.
Due to regulation, junior infrastructure debt isn’t suffering the same pricing competition as senior debt where banks and insurance companies also compete heavily. This can result in junior infrastructure debt capturing a higher complexity premium, often for a better credit profile compared to other asset classes.
Offering investors a range of tailored solutions in the UK and Europe
We invest in UK and European infrastructure to meet our clients’ needs, as part of a wider private debt allocation or as a stand-alone asset class. Our local approach (with deep-rooted regional and sector expertise) makes us a trusted partner in the markets where we work. In turn that helps us source innovative deals and boosts our ability to capitalise on prevailing market conditions. We target brownfield and greenfield assets in geographically mature markets, picking out the areas with the highest potential to create value.
We focus on three main investment themes
- Essential infrastructure - investing in a broad group of core infrastructure assets to give long economic life and long-term cashflow visibility
- Energy transition - supporting the transition to cleaner energy via a range of initiatives such as wind power and solar projects
- Digital transformation - investing in assets to help the digital revolution, from telecommunications towers to fibre-optic cable and green data centres
A sustainable approach with local expertise
By being deeply embedded in markets we know well, we can respond to new trends quickly, deploying capital to access unique transactions via our experienced team’s on-the-ground relationships. With our deep-rooted regional and sector expertise, we’re able to tailor a variety of portfolio management techniques to relevant assets.
We integrate sustainability across our infrastructure investments. We identify risks at the outset of the investment process and monitor ESG progress throughout the investment life cycle through proprietary ESG and impact assessment and reporting tools. We consider a range of factors, including energy efficiency, social impact, and governmental policies, to help build change.
“The energy transition, digitalisation and essential infrastructure are the most interesting sectors within infrastructure in our view. We believe infrastructure debt represents an attractive proposition for UK institutional investors seeking secure cashflows, attractive returns and diversification with a lower risk credit profile.”
Global Head of Infrastructure
Key Investment Risks
Interest rate risk for fixed-rate instruments: Interest rate volatility may reduce the performance of fixed-rate instruments. A rise in interest rates generally causes prices of fixed-rate instruments to fall.
Deterioration of the credit quality of the bond: Caused by a change in the market environment (for commercial activities) or a change in law/regulation (for all infrastructure activities).
Risk of issuer default: A decline in the financial health of an issuer can cause the value of its bonds to fall or become worthless.
Prepayment risk: The capital may be repaid by the borrower before reaching maturity.
Exchange rate risk: Where assets are denominated in a currency different to that of the investor, changes in exchange rates may affect the value of the investments.
Illiquid and long term investment risk: Due to the illiquid nature of the underlying investments, an investor may not be able to realise the invested capital before the end of the contractual arrangement (which is likely to be long term). If the investment vehicle is required to liquidate parts of its portfolio for any reason, including in response to changes in economic conditions, the investment vehicle may not be able to sell any portion of its portfolio on favourable terms or at all.
Capital loss: The capital is not guaranteed and investors may suffer substantial or total losses of capital.
Greenfield risks: in contrast to “brownfield” investments, investments in ”greenfield” infrastructure assets expose investors to additional risks, in particular construction risk (e.g. construction delays, cost overruns, etc.) and deployment risk (e.g. capital being deployed in several instalments during construction period rather than upfront for brownfield investments).
Trade cancellation risk: Trades and settlements are made on a bilateral, negotiated basis. A last-minute trade cancellation can occur in the absence of standard trade and settlement processes via clearing houses.
Service provider risk: Investments can be at risk due to operational and administrative errors, or the bankruptcy of service providers.