Multi-asset class credit manager ECM Asset Management has launched a European infrastructure debt platform targeting €750 million.
The Wells Fargo Asset Management unit announced the new strategy, which will include pooled funds and segregated accounts, at a news briefing on Wednesday.
ECM European Infrastructure Debt Fund will invest in syndicated loans ranging between €20 and €40 million in average size, said Nicola Beretta Covacivich, head of infrastructure finance at ECM. The manager will invest in senior limited-recourse debt and utility debt. The fund will target deals in the UK, Germany, France, Belgium, Netherlands, Italy, Spain and other countries in the EU.
ECM has entered an exclusive agreement with a leading bank in infrastructure lending, Covacivich said, although he declined to disclose the name of the institution. In a statement, the manager said it would have access to a large number of transactions on a first right of refusal basis. The manager will seek to source deals from other channels also, Covacivich added.
Covacivich commented in a statement: “With government funding reduced globally and banks’ appetite for long term lending structurally diminished by Basel III new capital and liquidity rules, funding is evolving as these traditional sources decrease. European infrastructure investments are expected to be approximately €2.5 trillion (according to EU and EIB data) through to 2020. This is a great time therefore to take advantage of the sizeable supply and demand gap present in this space.”
ECM has decided to step into infrastructure debt over small-to-medium sized business lending for two principal reasons, Covacivich said: firstly, SME lending is largely dominated by banks and secondly the longer-term duration of infrastructure is particularly attractive to institutional investors, he commented. In addition, infrastructure debt has proved itself to be an asset class that exhibits an attractive risk/return profile with returns on project finance loans generally higher than for corporate financing instruments, he said.
The fund will be structured as a closed-end fund deploying capital in two vehicles domiciled in euro and sterling currencies. It will have a 15-year investment horizon with the ability to invest for up to 20 years. Any capital refinanced after a five to seven year timeframe can be redeployed. Targeted returns for the fund are between 200 and 300 basis points.
ECM has €8 billion assets under management including a dedicated €1.5 billion senior secured loan business.