Here come the debt funds

Although bank financing is beginning to pick up, debt availability is still well beneath pre-crisis levels, creating a clear opportunity for debt fund managers to fill the void.

In support of the theory that nature abhors a vacuum, a succession of media reports highlighting the moribund condition of infrastructure’s capital markets has been swiftly followed by the unveiling of a new infrastructure debt fund.

InfrastructureInvestor yesterday learnt that Duet, the asset management firm, would be providing senior debt for short-term bridging facilities for UK PFI projects with the aim of building a £1 billion portfolio of assets over the next five years.

Last month, we reported on the establishment of a start-up business – also in the UK – called Hadrian’s Wall Capital.  Its planned fund will provide subordinated debt within senior ranking infrastructure bonds, while the firm will also act as a provider of various outsourced services to investors including addressing concerns about the provision of information and control rights.

Duet and Hadrian’s Wall are two quite distinct creatures, but what they have in common is an eye for a new business opportunity. Although banks are beginning to feel a little more emboldened, liquidity is still well down on pre-crisis levels.  Together with the demise of the mono-lines, and the consequent difficulties of insuring bond issues, a clear point of tension is developing between the always-vast volume of infrastructure projects in the pipeline and the ability to finance them.  

Little wonder that finding ways of rejuvenating the capital markets has moved up government agendas. With public spending in Western countries heavily constrained as a result of the financial crisis, governments are not in a position to fill the funding gap. Hence, for example, the hot spotlight now on pension capital and the fresh impetus behind moves for specialist infrastructure banks.

In this era of tight money supply, private capital providers have their place. To identify a trend based on just two recent fund launches may be rather speculative – but it would be no great surprise if they spawned plenty of imitators given the way the winds appear to be blowing.