Western Asset Management, Legg Mason’s fixed income subsidiary, is poised to launch a £1 billion (€1.2 billion; $1.5 billion) UK-domiciled infrastructure debt fund later this month, offering institutional investors exposure to a wide range of publicly-traded infrastructure debt securities across different industry sub-sectors and domiciles. The fund will be managed by London-based portfolio manager Ian Justice.
“The fund could have a capacity of up to £1 billion,” a spokesman told Private Debt Investor, Infrastructure Investor's new sister publication on private debt. “Western would be pleased if it raised between £100m and £300m in the first 12 to 18 months,” he added.
In addition to providing investors with exposure to publicly-traded debt securities issued by infrastructure businesses worldwide, the fund will provide investors with an “attractive source of long-term and stable income” while keeping default rates low through economic cycles.
“The rising demand for infrastructure spending and reduced bank and government financing will see more debt issued in the public markets,” Mike Zelouf, head of Europe, Middle East and Africa at Western explained. “The fund can be complementary to such private investment channels, as it offers greater liquidity and transparency.”
Western said it would be placing greater emphasis on bonds of infrastructure businesses that have a leading position in their sector, generate attractive and reliable cash-flows and benefit from the pricing power their dominant position affords them.
Only a quarter of the fund will be invested in ‘non-core’ securities, issued by businesses that engage in infrastructure activities and debt issued by infrastructure providers in Asia, Australia and the Americas, the fund manager said. The rest (i.e. the subsequent three quarters) of the total assets will invest in ‘core’ infrastructure debt securities that are predominantly issued by European businesses.
Western anticipates a surge in demand for infrastructure debt exposure from UK institutions. “With relatively low business risk and limited exposure to both competitive forces and the wider economic environment, allocations to infrastructure are increasingly being sought by institutional investors,” said Adam Gent, head of UK sales at Legg Mason Global Asset Management. “The funds will appeal to investors seeking high-quality, long-term, stable cash flows at the lower risk end of the fixed-income universe.”