The fast growing appetite for infrastructure debts amidst insurers and pension funds are fuelling concerns as to return from the sector would prove disappointing as the rise in demand has pushed infrastructure debt prices up and the yields down. However, reliable and consistent long term cash flows arising of infrastructure debt funds offer a wonderful alternative to low yielding government bonds. The supplies of investable projects remain constrained despite new money arriving. This is why investors are now turning an eye towards infrastructure debt asset management.
Infrastructure debt has swiftly established itself at the top of asset allocators must have listed. It has left investment managers in the sector with lot of capital and vexing problem, wherein they find enough projects to invest on acceptable terms.
In the recent past pension funds were a part of infrastructure debt like cheese for mice. Due to low fixed income yields, pension funds were eager in finding substitutes for coupon income. Infrastructure debt helps long term cash flows that go well with long term fixed liabilities. As infrastructure debt is illiquid, the rates are quite higher than traditional fixed income securities. As low bond yields cause duration of pension liabilities to increase, they are well considered by investors.
After a long proliferation of platforms, today infrastructure debt is a maturing market with all leading managers scrambling to stake differentiated strategies centred on global scope, scale, financial characteristics like inflation protection and credit seniority. Deal structuring and credit analysis are quickly becoming sophisticated. Margins are predictably being pressured by the influx of capital and the major constraint confronting managers are the availability of projects that deliver results at adequate credit criteria.
Long dated liability
The attraction towards infrastructure assets among investors is long dated liabilities. Long term investors realize the opportunity and hence want to access it. In case you have long dated liabilities and thereby want to match them, the best alternative is long dated corporates. Institutional investors can also put a part of their book in a less liquid system and get high returns.
Infrastructure assets are a perfect fit for liability driven investors. They comparatively yield safe long term assets. However it is not an easy asset class to resource and is highly credit intensive.
In a nutshell, infrastructure debt asset management is the talk of the day. It is aimed at extending and preserving the service life of the infrastructure thereby directly affects the economy and quality of life. Innovation is the heart of evolution and hence it is the way to look for most asset leaders. In order to organize, innovate and understand prioritizing investments, to assess risk, managing data and quality of the investment it is always important to consult an expert before you get involved in infrastructure debt asset management.