London-based Hadrian’s Wall Capital, a start-up business, said in a recent statement that it is well advanced in the development of an infrastructure debt fund and says it will make a more detailed announcement “imminently”.
The fund will also offer investors several services, including third-party structuring, credit and monitoring and intends to address investor concerns about the provision of information and control rights.
“Hadrian’s Wall’s primary focus is to provide our investors with stable, high-quality returns in addition to re-starting capital market investment in infrastructure bonds,” says Marc Bajer, chief executive of the fund, and a former head of Assured Guaranty’s European business, one of the only monolines that survived the financial crisis. However, he defers any further comments to the upcoming announcement the fund is preparing to make.
Following the demise of the monolines, which traditionally insured bonds issued for infrastructure projects, institutional investors have found it hard to access the infrastructure market. The main problem is that they do not have the in-house expertise to deal with construction risk – the chief culprit in dragging infrastructure projects below investment grade.
But tight liquidity and higher capital ratios for banks are likely to continue to limit their ability to invest in infrastructure on a massive scale. That has pressured market players to devise new ways of accessing the capital markets. By providing structuring, credit and monitoring services, Hadrian’s Wall appears to be positioning itself as one of the first private sector solutions to cater to this need. The fact that its chief executive used to spearhead the European business of one of the only monolines that survived the crisis could position the fund well with institutional investors.
However, there are signs that public institutions are also waking up to the need for creating conditions that will allow institutional capital to take a leading role as a debt provider for infrastructure. In the UK, Mervyn Davies, the trade and investment minister, has been in talks with pension funds on how best to create a new capital market for infrastructure. A government guarantee for construction risk is one of the options on the table, Lord Davies said at a recent infrastructure conference, along with setting up an infrastructure bank.
On an EU level, the European Investment Bank said in a paper last October that it was considering providing guarantees for bonds issued by concessionaires building projects that form part of the Trans-European Transport Network (TEN-T). These multimodal projects aim to link transport networks across European countries.