Infrastructure Debt: A broad selection enables a good mix

Infrastructure debt is currently among the most attractive forms of investment. The selection is large and diverse, both in terms of sectors and themes as well as credit ratings, maturities and volumes. “Institutional investors are just gaining an overview here – and then rely on good diversification,” says Sebastian Bergmann, Managing Director of EDS.

The asset class is appealing since infrastructure financing usually runs for many years. Further, it has been subjected to an intensive review by lending banks and often show a competitive risk-return ratio.

Thematically, infrastructure debt comprises a wide area, from roads and tunnels in the UK, ports in Canada and offshore wind farms in France to educational facilities in Spain or digital network expansion in Ireland. “Transport and traffic as well as renewable energies are sectors that are represented the most,” says Bergmann. Likewise, investments in public infrastructure for health or education are regularly financed by banks.

“To make room for new businesses, many banks are now passing on loans,” says Bergmann. “Of particular interest are those that offer an attractive return despite the increased interest rates.” Here, the range is between 3.5% to around 8.5%. The available tranches also vary greatly in terms of volume: possible investments range from around six million euros to 130 million euros.

The loans that are offered show ratings between AAA and B+ (S&P) with remaining terms between 1.7 and 27.4 years. “Based on this broad range of possibilities, investors can put together portfolios that suit them best,” says Bergmann. “For institutional investors, it is interesting to be able to create a well-diversified portfolio within the infrastructure credit asset class.” This way, cluster risks can be avoided and the balance between risk, return and maturity can be individually designed. The EDS portal offers this transparency as well as the composition of a desired portfolio.

“However, it can be observed that more and more institutional investors generally obtain information on individual loans but prefer to outsource the compilation,” says Bergmann. In this context, the bundling of loans in funds or Luxembourg Compartments are particularly in demand.