The lack of available long-term debt to finance infrastructure projects following the global financial crisis is having a significant impact on infrastructure deal flow. In total, 161 deals have been completed by unlisted infrastructure fund managers in 2010 to date, considerably less than the 215 completed in 2009. As a result, a greater number of infrastructure fund managers are beginning to launch debt funds to bridge the financing gap.
Preqin is currently tracking 72 institutional investors that have either previously invested in an infrastructure debt fund or would consider doing so in the future. A number of these are banking institutions that have previous experience in direct debt financing and would consider gaining similar exposure through commitments to third-party vehicles. Investors may also look to gain exposure to infrastructure debt funds as a means of further diversification within their infrastructure portfolios.
Debt funds could also attract smaller investors due to the lower level of fees that are traditionally associated with debt vehicles as a result of lower management overheads. In a Preqin survey conducted in June 2010, 20% of surveyed investors stated that the availability of debt is a major issue facing the infrastructure asset class. The debt that is available is often too expensive for many fund managers to take advantage of, or is only available over the short-term. Therefore, in order to overcome the lack of viable debt options, unlisted debt funds are likely to play a greater role in providing an alternative source of debt financing in the future.
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