Macquarie intends to capitalise on investor demand for indexed assets by offering the UK’s first inflation-linked infrastructure debt fund.
The vehicle will target UK pension schemes seeking debt investments to match their long-term inflation-linked liabilities, just as a general market move towards disintermediation opens up fresh opportunities for alternative lenders.
Macquarie told Infrastructure Investor that no target has yet been fixed for the fund but James Wilson, a senior managing director and chief executive of Macquarie Infrastructure Debt Investment Solutions (MIDIS), said that the vehicle would aim for “several hundred” million pounds.
The fund manager has already received backing from a cornerstone investor – an unnamed corporate pension scheme which will invest £200 million (€238 million; $331 million) via a separate managed account to be deployed alongside the fund.
The vehicle, which will focus solely on investment-grade debt, will be targeting an average return of 200 to 250 basis points (bps) above index-linked gilts. Macquarie expects to achieve this by capturing the illiquidity premium offered by private debt assets as well as the inefficiencies of traditional bank intermediation, which it says typically generates a yield loss of between 50 and 100 bps.
The firm estimates the annual pipeline of inflation-linked debt products to be worth around £4 billion, comprising £1.5 billion in utilities’ network upgrades and refinancings, up to £2 billion of lending to renewable projects and £500 million dedicated to offshore transmission assets (OFTO).
The fund will acquire assets with legal maturities of up to 45 years, with a minimum investment size of £10 million. Fees will vary by size of commitment, Macquarie said.