Participants in a panel assessing the future of the infrastructure debt space at Infrastructure Investor’s Berlin Summit 2013 found that managed accounts are proving more popular with limited partners (LPs) when it comes to investing in the infrastructure debt space.
“There’s been considerable interest in managed accounts and other bespoke solutions [for infrastructure debt] over blind-pool funds,” said Ajay Pathak, partner, corporate finance, at law firm SJ Berwin.
John Tanyeri, head of private energy finance, power & strategic investments for insurer MetLife, in charge of managing a multi-billion dollar portfolio of infrastructure debt, agreed with Pathak: “We believe managed accounts are better for infrastructure debt as clients can tailor it to their needs.”
“What we have seen, though, is that funds with a specific focus within the capital structure have been more successful,” Pathak added.
The panel, part of a special forum on the rise of institutional infrastructure debt, was held on day two of the Berlin Summit 2013, which this year drew a record 500 delegates.
“In the future, a hybrid institutional investor/bank model will emerge, which is actually what used to happen in project finance about 15 years ago. So in a sense we are coming full circle,” MetLife’s Tanyeri continued. He also warned that institutions aiming to invest in the space need to commit resources to it.
“You need to grasp the fundamentals of project finance. Project finance is a sub-section of structured finance and it’s not easy. You need to have a very experienced and detailed team. If you are just investing in infrastructure debt off the back of Standard & Poor’s reports, you will fool yourself. Institutions either need to create their own teams or outsource,” he explained.
That is, of course, if you want to originate infrastructure debt, but the MetLife boss was not especially bullish on secondary debt purchases. “The problem with [buying] secondary portfolios is you’re buying someone else’s structure,” he summarised.
He was, however, more positive about the health of infrastructure debt in a higher interest rate environment.
“I think infrastructure debt will still look very attractive [when interest rates rise]: its inflation-protection characteristics are great and we think that as rates rise senior debt yields will start to make more sense as it has a good risk/return profile.”