Our panel

Jeetu Balchandani
Global head of infrastructure,

Paul Buckley
CEO and managing partner,
FIRSTavenue Partners 

Jorge Camiña
Partner and head of sustainable infrastructure credit,
Denham Capital

Evan Nahnsen
Global head, infrastructure debt,

Tom van Rijsewijk
Managing director,
Macquarie Asset Management

Ian Simes
Managing partner and co-head of infrastructure debt,

What are the biggest challenges that you see over the horizon?

IS: We have seen some infrastructure investors stretch the definition of infrastructure such that they only focus on essentiality. But many things are essential – bread production, farming and supermarkets. We prefer to target assets that are not only essential but also have a real asset base that is costly to replicate – this is what creates the defensive ‘moat’ and provides downside protection to lenders. 

PB: Governments using budgetary pressure as a justification for unilateral changes to renewable energy contracts. 

JB: While we expect the impact of a recession to be fairly limited on deployment, fundraising could be more challenging in an environment with higher interest rates, a stronger dollar and a sustained denominator effect. Where investors can find comfort is that the infrastructure debt asset class continues to be resilient, proven through every period of market stress. 

EN: Looking forward, we expect rising base rates after a decade of low interest rates to have an impact on dealflow for new deals as well as refinancings. But given infrastructure’s importance in the economy, infrastructure assets still need to be built and financed. 

How is infrastructure debt performing considering the macroeconomic climate?

TvR: Despite the volatility markets have experienced over the last few years, we have seen infrastructure debt perform very well. Throughout the pandemic, the market proved robust, with disruption to supply chains having a limited impact.

IS: Some assets with a large amount of construction risk have been adversely impacted by high inflation and supply chain issues – for example, this has been an issue in the data centre sector – although this has largely impacted equity returns as opposed to causing any distress for debt investors.

JB: As an essential and typically monopolistic asset class, infrastructure is well positioned relative to broader credit from a macro-economic standpoint, although certain GDP-linked assets such as toll roads and airports are more exposed. Infrastructure debt capital structures are generally well designed to withstand recessionary shocks.

JC: This is arguably the most exciting time for institutional investors in private infrastructure debt since the asset class was established. Yields for high-quality assets doubled from a 3 percent to a 6 percent area yield in US dollars, with other hard currencies experiencing similar uplifts.

What is the chief attraction of infrastructure debt as a strategy?

EN: Infrastructure debt can provide investors with stable, defensive, risk-adjusted income streams that are broadly uncorrelated to public equity markets with natural liquidity windows. Investors may be rewarded for the illiquid nature of assets as well as reduced competition as banks continue to withdraw.

PB: The asset class carries the lowest default/loss rate after government debt and is often valued on highly predictable strings of cashflows. It is long dated, and fixed-rate solutions are increasingly on offer that prove useful for matching long-dated investor’s liabilities and replacing government bond portfolios. 

JC: It offers long-term income with superior credit resilience, as well as a lower default probability and resulting lower losses. We are at a time in the cycle where portfolio managers revisit the contents of their credit portfolio – infra debt is the part they do not worry about.

IS: As a strategy, infrastructure debt offers downside protection, resilience through economic cycles, and the opportunity of superior risk-adjusted returns relative to corporate credit. We believe investors can earn a premium in infrastructure credit due to its perceived complexity, generating a ‘complexity premium’.

Which sectors are most attractive from a debt perspective?

IS: There is no doubt that the energy transition and rise of data will generate strong dealflow for many, many years. Only 3 percent of the world’s energy is currently produced by wind and solar. The investment required to achieve net zero by 2050 will be huge.

PB: Debt in assets with contractual cashflows is the most interesting to investors. In addition, the implementation of the Inflation Reduction Act provides a strong support to new projects in the US, which will likely result in a wealth of opportunities in that region.

TvR: The pandemic is having a lasting impact in the digital space as the push for high-capacity communications infrastructure intensifies. Ambitious connectivity and fibre rollout targets are creating new financing opportunities, both with big incumbents and a growing number of ‘altnet’ operators. 

JB: Digital infrastructure is a rapidly growing and developing sector. Covid-19 has solidified fibre as a core infrastructure sector, given its importance for remote working. An acceleration in digitalisation has led to increased financing activity in fibre broadband, mobile network towers and data centres – across both high-yield and investment-grade credit qualities.

Which developments would you most like to see in 2023?

EN: The accessibility and quality of ESG data are key issues, and while a number of initiatives have been launched to improve accessibility and quality, we would like to see continued improvement in ESG data standardisation and sharing among sponsors and lenders, both pre-investment and post-investment.

PB: Gradual increases to additional interest rates that further improve attractiveness of infrastructure debt, without increasing default loss rates, and the further development of a fixed-rate offering to answer liability-driven investment requirements.

JC: One of the most important developments in 2023 will be the impact of the IRA in the US and beyond. Although it was passed in August 2022, the full impact of the landmark legislation is still to be felt, with guidance from the IRS expected in Q2 or Q3 of 2023. We are not even in the first inning.

JB: The IRA in the US will create a significant opportunity in renewables, carbon capture, hydrogen and digital infrastructure, with institutional investors having an important role to play in meeting that demand. Programmes in Latin America such as the 5G programme in Colombia will continue to drive demand for transportation assets, which have rebounded globally since the pandemic.