IFM’s Randall: Infrastructure debt a defensive asset

The Australian firm's debt chief argues such an investment is not subject to economic booms and busts like other types of debt.

Blue-chip firms active across the infrastructure universe have diverse views on the role infrastructure debt should play within investment portfolios. But IFM does not seem to be sitting on the fence.

With default rates of less than 10 percent, infrastructure debt makes an attractive investment as a “defensive” asset class, Rich Randall, global head of debt at the Australian firm, told sister publication Private Debt Investor at a recent roundtable event.

“It’s not correlated to the usual economic cycles,” he said. “So, investors can expect a low probability of loss. So obviously, correlated with that, [investors] are going to get a lower return than some of the alternative debt classes that are subject to the economic cycle risk.”

Randall added that infrastructure debt can often have recovery rates of 90 percent. The trick for investors, however, is determining where to place such an investment: under fixed income, or alternatives? The asset class falls somewhere in between the two, but Randall said investors should opt for the former.

“Because it is an illiquid asset class, some firms will tend put it in their alternatives bucket, however it doesn’t earn quite enough. It’s a very defensive asset class,” he said. “So we spend a lot of time educating pension fund investors that it does indeed fit into the fixed-income bucket, and investors should consider it as a fixed-income alternative.”

Earlier this month, IFM hired Matthew Wade, a former Royal Bank of Canada director, as an executive director of debt investments within its North American branch. The appointment came after the firm made a string of staff additions to boost its US-based investor relations team in June and September.