Infrastructure debt investment management – Hot investment or run away now!


The increased demand for infrastructure debt among the insurers and pension funds is creating some concerns to the investors whether it is a hot property now or a run way. The threat they sense is whether the returns from this sector may turn out to be limited as the current hype may push the price of infrastructure debts up and yields down.

One thing is sure that more reliable long-term cash flow from infrastructure debt funds may prove out to be an effective alternative to the government bonds of low-yield, but it is also a fact that the supply of investment projects become constrained despite of the extra money being pumped in.

What drives the investors?

As of late, investors are largely concerned about high valuation of infrastructure assets and this can have a significant impact on its performance. It can be also said that the pressure on infrastructure pricing may not come down in the near future with more than about 200 frontline infrastructure fundraising programs summing up the money.

The investors are not just looking at a better return from infrastructure assets, but also to gain access to a highly diverse set of companies to enjoy better protection against inflation. They find the option for this diversification as a major catch in infrastructure debt investment when compared to the unsecured corporate bonds.

Institutional investors

Even though the reason for investing on a particular investment vehicle largely depend on the specific objectives of the investors, the market opportunities at current scenario are highly favourable for infrastructure debt as far as many institutional investors are concerned.

This is very true in case of long-term investors like pension funds. For those investors who are with real liabilities, the current market poses a crucial challenge. It can be noted that many bond yields, especially those which are inflation-linked yields, are keeping at an all-time low, the impact of which is expected to drive the returns down and the future liabilities up.

Moreover, the increasing correlation among many of they listed top markets has also made it difficult to ensure real returns. All these makes infrastructure debt an ideal alternate to all, by putting forth a much sustainable solution. Infrastructure bond investment gives a reliable opportunity for the pension schemes and similar funds to invest in non-correlated real assets by enjoying an attractive risk-return profile.

Add-on benefits

Along with enjoying the returns from enhanced diversification, the investors can also make use of the infrastructure investment to balance their liability profile on basis of this partly inflation-linked and fairly predictable distribution stream. Infrastructure debt investment is one of such rare opportunities offering the investors an option to exchange their low yielding long-term government-type of bond investments for better infrastructure debt investments. This in turn has stable cash flow characteristics, similar rating as the others, but ensures a higher yield.

For those who are confused about infrastructure debt investment at current market, it is surely a hot investment vehicle in comparison with the other low yield long-term investment plans. However, it is important to choose the right fund to partner with, which requires fair consideration and close evaluation before initiating an investment.

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