‘A little bit of stress could be good’

Global head of infra debt Andrew Jones walks us through the deployment of AMP Capital’s $2.5bn third junior debt fund, now fully invested.

AMP Capital has completed the deployment of its third infrastructure debt fund and its sidecar vehicles, and ended up with 15 investments in its portfolio.

Andrew Jones, global head of infrastructure debt at the Sydney-headquartered fund manager, told Infrastructure Investor that both the number and size of investments in its Infrastructure Debt Fund III had grown since the fund’s predecessor, IDF2. He described the final make-up of the portfolio as “really positive”.

Jones declined to comment on potential fundraising for a fourth debt vehicle. However, he did say: “It would be highly unusual, given the success and momentum of our business over previous funds, not to continue to offer that capability.

“The most I can say is that we’re continuing to have great support from investors around the world in committing to our strategy.”

According to a UK Companies House filing, the fund manager registered AMP Capital Infrastructure Debt Fund IV last October. It has at least one publicly-known LP, Canadian pension CDPQ, according to another Companies House filing submitted in January.

AMP Capital IDF3 held a final close in August 2017 on its hard-cap of $2.5 billion. This was accompanied by $800 million in two separate co-investment pools, which have also been fully deployed.

“Our final close was significantly oversubscribed,” Jones said. “Investors unfortunately only received about 30 cents on the dollar of the amount they were hoping to commit to the strategy. There was very strong demand.”

The 10-year closed-end vehicle pursues mezzanine debt investments, and aims to provide the entire mezzanine tranche in a particular asset. Its publicly disclosed investments include loans to US-based telecoms tower companies Tillman Infrastructure and Vertical Bridge, a Swedish district heating portfolio owned by Solør Bioenergi and US waste recycling firm Synagro.

AMP Capital this year came fifth in our inaugural ranking of the world’s biggest infrastructure debt managers, having raised $5.45 billion in the five-year period assessed.

Jones said the mezzanine debt space in which AMP Capital operates is still less competitive than senior debt, and notwithstanding the entrance of several new players.

Big in Japan and Korea

Investors in the fund came primarily from Japan, Korea, Germany, the UK and Canada.

Jones said Japanese LPs had been attracted by infrastructure debt’s defensive characteristics, and that pension funds accounted for most of the Japanese investors in the fund.

“We’ve benefited from the fact that, for Japanese investors, it’s very difficult to generate an attractive return post the hedging costs from a senior infrastructure debt strategy,” he said.

“A high-yielding subordinated strategy delivers an attractive post-hedging net return for investors, which they’ve been attracted to. And they’re very sensitive to the consistency of returns, [so] our long track record has been attractive.”

He added that the fund’s Korean LPs were typically insurance companies and that they generally had a higher risk appetite. “A typical Korean investor who supports our strategy will have a portfolio of other private credit investments, a series of infrastructure equity investments and some other higher-target-returning private equity-style investments in their portfolio, and will be looking on this as a diversifier amongst this other pool of alternative investments.”

In contrast, AMP Capital’s debt funds have had only “limited support” from Australian LPs. Jones said this was partly because superannuation funds “are quite used to accessing infrastructure directly” and partly because the “nature of the vehicles that we offer, typically a 10-year closed-end structure, are not as popular in this market”.

When asked how the infrastructure debt strategy would fare in the late stage of a cycle, Jones said many investors are “pretty conservative” about making fresh allocations to credit strategies. However, he added that the types of assets the strategy was targeting were generally not GDP-linked.

A stressed environment could throw up more opportunities for investment, he added, while noting that a more severe downturn could lead to a squeeze on lending and fewer M&A opportunities.

“A little bit of stress could be good,” he said. “Too much probably freezes things up a bit.”