Infrastructure debt investments are becoming harder to find and do not offer significant premium yields for their complexity and illiquidity—even though investors are continuing to pile into the asset class.
M&G’s co-head of alternative credit William Nicoll—whose team are raising cash for a variety of alternative forms of fixed income—said he could “quite happily fill a room with people wanting to buy infrastructure debt, but there is not much of it around and it’s quite expensive”.
“People are trying to pile money into a place where there is arguably less value,” he added. “There is a large amount of money chasing a small amount of assets.”
Nicoll said M&G had almost finished fundraising for project and infrastructure funding due to high demand and the fact that “we don’t see enough infrastructure debt to do anything with on its own”.
Nicoll’s warning comes as data from research firm Preqin reveals a record number of infrastructure funds (both equity and debt) are operating in the market as of the start of this month. Preqin said 149 funds were seeking an aggregate of $90 billion in funding.
In addition the firm said funds that closed in the first half of this year raised their target level of capital much more quickly than funds that closed in the same period of 2013, spending 13.4 months in the market on average, compared with 2013’s figure of 21.6 months.
Norway’s sovereign wealth fund is seeking permission from the country’s government to invest in infrastructure, while the Church of England’s investment fund is to boost its own holdings in the asset class.
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