The characteristics of Senior Infrastructure Debt can be particularly attractive to investors implementing a Cashflow Driven Investment (‘CDI’) Strategy.
The McKinsey Global Institute states that an additional £3.3tn needs to be invested globally each year just to support current rates of growth through to 2030. This funding gap for infrastructure debt is primarily caused by the continued strong demand for infrastructure (and therefore infrastructure debt) while regulation has constrained the ability of banks (who have traditionally provided infrastructure debt) to lend.
Senior infrastructure debt involves lending for the acquisition, construction, expansion or refinancing, of infrastructure assets. Debt repayments are financed through a combination of underlying 'demand based' revenue streams and/or government contracts.
We believe the long term inflation linked cashflows that senior infrastructure debt provide make it a particularly attractive investment for some investors, especially as part of a Cashflow Driven Investment (“CDI”) strategy. Although returns are relatively low compared to other illiquid assets such as direct lending, the essential nature of the underlying asset, along with the protective covenants and seniority in the capital structure, provides sufficient downside protection. Clients should take into consideration the illiquidity and high concentration in pooled funds.
Download Senior infrastructure debt – Investment case to find out more.