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Yield hunters drive infrastructure debt boom
by David Campbell on Mar 08, 2013 at 10:30
Income seekers are flooding into the space vacated by deleveraging banks to replace traditional funding sources for infrastructure debt issuance.
The hunt for yield is tempting many institutional and fund investors to consider the asset class, while project managers are casting around for a replacement to reduced bank finance.
In the first six weeks of 2013 alone, around $900 million was raised for new fund issues, a third of the $2.7 billion raised during the whole of 2012, reports research house Prequin.
Funds being marketed are targeting a total raise of more than $8 billion, it said.
That has tempted new entrants to the market, such as JP Morgan and BlackRock, which both poached management teams and announced plans to launch funds in the second half of 2012, while more traditional mixed debt/equity infrastructure funds have flourished.
‘In the past, the infrastructure debt fund market has been a fairly niche part of the asset class, but it is growing in prominence,’ said Prequin.
‘This shift is partially being driven by incoming capital adequacy requirements for banks [Basel III], which are making new debt investments in illiquid infrastructure assets a more difficult prospect and are forcing banks out of the space.
‘This is creating a gap in the infrastructure debt market for non-traditional lenders that are attracted to the stable revenue streams and the long-term liability matching characteristics of infrastructure debt.’
Boe Pahari of AMP Capital Investors added: ‘Banks have a changed appetite in terms of leveraged ratios and tenders after the credit crunch. As a result, there is a space where pension funds can participate on the debt side, particularly in mezzanine [lending].’
The long-term fixed capital structures of infrastructure contracts make them particularly suitable for matching liabilities over potential multi-decade periods and a potential substitute for managers who might be wary of sovereign duration risk.
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