Private infrastructure debt is growing as an asset class and investors are recognising its value in asset allocation. Since 2001, the AMP Capital Infrastructure Debt Team has raised US$7.4Bn and has completed 76 investments. The team has deployed capital for three prior funds and have just raised US$4bn for IDF IV, reaching the Fund’s hard cap at the end of October 2019. This makes AMP Capital the 3rd largest infrastructure debt manager in the world (Infrastructure Investor February 2020).
The AMP Capital Infrastructure Debt strategy provides private and subordinated debt to infrastructure business in developed North America, Europe and Asia. The strategy focuses on yielding subordinated debt of defensive assets that offer:
- Monopolistic-style businesses with high barriers to entry;
- Balanced and consistent cash flows across market cycles;
- Regulated or contracted operating environments, with political stability and mature legal, tax and accounting frameworks.
The AMP Capital Infrastructure Debt strategy offers a target gross IRR of 10% focusing on consistent cash yield and low volatility. The duration of the loans is long-term (7-8 years legal maturities) and as such the investment is illiquid and pooled in a 10 year closed-ended vehicle. Investors have been attracted to the strong risk-adjusted returns which can complement diversified portfolios, the long-term yield it aims to provide, and the risk diversification from lower volatility and lower correlation to traditional assets.
Investors should note that key investment risks relating to infrastructure debt include (without limitation) liquidity risks, financial market instability, changes in market, economic, political or regulatory conditions, credit and default risk and changes in interest rates. When considering an investment in private, subordinated infrastructure debt, many investors are grappling with where in their portfolio this allocation should sit. Does private, subordinated infrastructure debt belong in a Private Credit bucket or is it more appropriate in an Alternatives or Fixed Income bucket?
In this paper, we provide a framework for considering private, subordinated infrastructure debt in the context of a diversified portfolio.
Subscribe below to Insitutional Edition to receive my latest articlesPatrick Trears, Global Head of Infrastructure Debt
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