A new era in infrastructure debt
In Short
Gilles Lengaigne
Managing Partner, Head of Origination & Corporate Development at Infranity
Infrastructure debt has been a net winner from this high interest rate, high inflation environment. The absolute returns now on offer, as a result of increased rates and margins, means the asset class is proving a compelling option for insurance companies, pension funds, sovereign wealth funds and private investors that may have historically opted to focus on public market strategies, according to Gilles Lengaigne, managing partner at Paris-based investment firm Infranity, part of Generali Investments.
The energy and digital transition investment themes continue to deliver attractive opportunities. However, the massive capital at stake and complexity of these sectors means it is becoming increasingly important for infrastructure debt managers to have large financing capabilities and sizeable teams with domain expertise. This will prove a critical differentiator when it comes to sourcing deals, as well as astute investment decision making.
Why does infrastructure debt represent an attractive investment strategy in the current economic environment?
This is a highly opportune time to be investing in infrastructure debt – the risk-return proposition is extremely strong. Not only are rates high, but margins have increased and, contrary to certain other private debt strategies which can be more cyclical, infrastructure offers a stable investment thesis and resilient credit story in a volatile economic environment.
While we have seen a marked slowdown in investor allocations to alternatives more broadly over the past 12 months, there have been two segments that have fared relatively well: one is infrastructure and the other private debt. Private infrastructure debt, a field that sits at the crossroads of those two market segments, therefore has been well positioned when it comes to attracting LP capital in an otherwise difficult fundraising market.
Indeed, as infrastructure debt returns are at an all-time high, both due to a rate increase and the margins that lenders have been able to capture, several institutional investors have now opened up their alternatives bucket to infrastructure debt. Historically, the absolute returns available have simply been too low for many pension funds and sovereign wealth funds to consider, but that is no longer the case. We are also seeing private wealth investors, many of whom have previously focused exclusively on equity products, now looking at infrastructure debt for the first time.
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