Why infrastructure debt is flying high
The characteristics of infrastructure debt, including long-term contracted cash flows, regulated environments and a low correlation with traditional asset classes, are very attractive to some investors.
We’ve had a belief for some time that there are attractive returns in the subordinated space and at various points in the economic cycle, infrastructure debt can also look attractive relative to core infrastructure equity.
We are at one of those points now because the amount of capital available for equity infrastructure has pushed prices up and there are very few managers out there such as AMP Capital that are willing (or able) to provide more than US$200 million in subordinated infrastructure debt to a single asset2.
For institutional investors looking for long-dated products with quality cashflows and genuine defensive characteristics, infrastructure debt often fits the bill.
|AMP Capital view|
AMP Capital targets a gross internal rate of return for its infrastructure debt assets of 10 per cent3 with an emphasis on stable long-term yields with low volatility. AMP Capital prefers to be a lead arranger and is focused on high-yielding subordinated debt of defensive companies.
Each of AMP Capital’s investment strategies tend to have around 15 investments in the US$75-500 million range and debt maturities are typically of seven or eight years. It targets OECD and developed countries across transport, energy, utilities and telecommunications.
Energy assets across Europe and the United States are currently attracting much investor interest while utilities are stable. The renewables sector has provided increasing opportunities also across Europe and the United States.
Telecommunication is an attractive sector, spurred on by the roll out of mobile phone towers for 5G networks across the United States. Investing in digital infrastructure, such as fibre networks and data centres, is also an emerging theme within infrastructure.
AMP Capital provides capital for acquisitions, refinancing and serves as an alternative to owners exiting a business. According to Willis Towers Watson, AMP Capital sits in the top 15 infrastructure managers globally with US$16 billion in infrastructure equity and debt.
1 Moody’s investors services Infrastructure and Project Finance Default Research 2018
2 Infrastructure Investor, 2019
3 Target returns are merely estimates and there are no guarantees that the returns will be achieved. Past performance is not a reliable indicator of future performance
While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.