Before venturing into some details about infrastructure debt it will be useful to clarify some basics about infrastructure and its importance. This is essential to understand the financial tool for institutional investors that have attracted attention in recent years. Looking across the globe one will discover that infrastructure is the backbone of economy. The basic facilities like roads, railways, bridges, sea ports and energy generation units that are necessary to carry out trade and commerce so as to ensure the functioning of the economy of any country can be termed as infrastructure. The need for investment in infrastructure is on the rise as a result of demographic changes. The picture is the same in emerging as well as developed countries as investment in infrastructure holds the key to economic progress. This has opened the market for infrastructure debt funds.

What are infrastructure debt funds?

Funds that are created by financial institutions and banks with the sole purpose of providing a platform to investors for investing in infrastructure are known as infrastructure debt funds. The money that is invested in infrastructure debt funds are utilised by infrastructure development companies that fuel economic growth and the investors benefit from the return on their investments.

Investment opportunities

The thrust on economic growth has fueled the need for better infrastructure that is looked upon as the magic wand that can drive economic growth which can also elevate the quality of lives. Institutional investors have always shown keen interest in infrastructural investments but there only way of accessing it was by investing in the equity of the capital structure projects or in equities belonging to the sector. The creation of infrastructure debt funds gives investors an opportunity for direct investment in this sector.

Why are IDFs attractive?

From the investor’s viewpoint, infrastructure debt funds or IDFs are attractive because it ensures long term and reliable cash flow as compared to government bonds that provide lower yields. Investors are expecting not only better returns from infrastructure assets but are also interested in accessing a wide range of diverse companies whose bonds offer better protection against inflation as compared to unsecured corporate bonds.

Concerns for investors

As global economy traverse along a growth path, investments in infrastructure are on the rise. Heavy investments in IDFs are pushing up the prices of infrastructure debt and yields are sliding. This is a concern for investors and fund managers alike. High valuation of infrastructure asses is also a matter of concern for investors as it raises apprehensions about its impact on performance.

Investment prospects

There are conflicting views about the investment prospects in infrastructure debt funds. While a section of market watchers and fund managers are optimistic about strong investor interests across Europe and UK, there are doubting Thomases too, who contradict this view. The sceptics fear that investment opportunities for institutional investors

The need for investment in the energy infrastructure sector is growing rapidly as a result of strong growth of emerging countries. This can become a game changer for investors who could find every reason to stay optimistic about infrastructure debt funds.

Alice Forres

Investment Company

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