Traditionally, the infrastructure debt market has been dominated by large banks with balance sheets able to cope with the rigour and scale of infrastructure debt provisions. However, with the incoming capital adequacy requirements of BASEL III, banks are being pushed out of the infrastructure debt sector, allowing non-traditional lenders such as fund managers into the space. Preqin is currently tracking 51 debt/mezzanine infrastructure fund managers. At present there are 21 infrastructure debt funds on the road seeking to raise an aggregate $17bn.
Infrastructure debt funds are attractive to investors due to their long term, inflation-adjusted, stable and predictable returns and revenue streams. In the light of depressed fixed income yields and volatile equities markets, investors with long-term investment horizons and liabilities are increasingly looking to investments such as infrastructure debt to provide for these types of long-term liabilities. Pension funds and insurances companies in particular are examining the opportunities to be had in this area and make up 38% of the investors active in debt/mezzanine strategies.
The most prominent region for debt/mezzanine fund managers is Europe, with 35% of the managers open to debt/mezzanine investments based there. Twenty-seven percent are based in North America, 16% in Asia and 22% are located outside of these regions. Looking at the industries these fund managers are focusing investments on, the energy sector is most prevalent, with 80% targeting energy infrastructure assets. Sixty-five percent are targeting transportation, 47% will invest in utilities, 43% in water and 31% in telecoms. Other industries targeted include waste management (25%) and logistics (18%).
The majority of debt/mezzanine fund managers have only raised one fund to date (74%), showing that it is still a fairly new market for infrastructure GPs. Six managers (14%) have raised two funds or more, and just five (12%) have raised three funds or more. Managers which are prominent in the debt/mezzanine space include US-based EIG Global Energy Partners, which has raised five funds and targets infrastructure debt opportunities, totalling almost $8bn in capital commitments. South Korea-based fund manager KIAMCO and US-based Darby Overseas Investments have also raised five infrastructure funds which utilize the debt/mezzanine strategy. UAE-based Abraaj Capital has raised $2bn for one fund which seeks infrastructure debt investments. Notable fund managers which raise funds focusing purely on infrastructure debt opportunities include Aviva Investors, Allianz Global Investors, Edifice Capital, La Banque Postale Asset Management and Sequoia Investment Management Company. All of these fund managers are based in Europe and are currently raising funds each targeting €1bn.