A global modernization cycle and the need to diversify private credit portfolios fuel interest
Infrastructure debt has received a surge in interest among institutional investors to meet the demand for capital to modernize energy systems, expand digital networks, and build more resilient supply chains, as reported in an article by Institutional Investor.
Following the global calls for decarbonization as well as digitalization, the infrastructure sector is facing the demands for investments in facets such as renewable energy, energy storage, grid modernization, among other solutions concerning energy.
IFM Investors Executive Director Matt Wade noted what infrastructure debt can offer investors and their portfolios.
“I believe it’s an under-allocated area of investing that can provide good diversification to investors’ portfolios,” said Wade, adding that it can deliver consistent, bond-like income while still not correlated to public markets and traditional private credit.
Wade further explained that as they are real assets, many of them were cash-flowing, which lead to them producing “bond-like coupons.”
Since 2015, assets under management in infrastructure have seen an expansion at a compound annual growth rate of 23.1%. During the first half of 2024, infrastructure funds were reported to have raced more than $40 billion, showcasing strong investor confidence.
As investor interest is also fuelled by the growth in demands for capital to support digital transformation as well as energy transition, Wade noted that there was more that the investment can offer.
“In addition to the defensiveness and resiliency, we simply have so many tailwinds in this part of the market. Digitalization, decarbonization, and energy independence – these forces aren’t going away. These are themes that are going to be in place easily for the next five to ten years,” he said.
While the credit markets continue to tighten as volatility maintains its rise, Wade expressed his belief that infrastructure debt will be more compelling, given its value.
“Even though we’ve got tightening credit spreads in a few areas, the relative value that the illiquidity premium for infrastructure lending can generate – plus the defensive characteristics – I really think is quite powerful,” said Wade.
