Exactly a year ago this week, we tentatively touted the prospects of infrastructure debt in a pandemic and post-pandemic world. Its progress in those early months of covid-19 was “going reasonably well”, we noted, even with our warning at the time that future large-scale lockdowns could derail it.
Even with those lockdowns happening, infrastructure debt remains on track, with BlackRock Real Assets’ $1.67 billion close last week of its Global Infrastructure Debt Fund – its maiden junior debt vehicle – one of the biggest testaments to this fact.
This 2019-vintage vehicle had raised about $250 million before the onset of the pandemic, halfway to its $500 million target. The fact that it raised more than three times that target at final close during various lockdowns is no coincidence – even if Jeetu Balchandani, BlackRock’s global head of infrastructure debt, was “very surprised” at the size the fund closed on.
“The low interest rate environment has driven a lot of investors to consider higher-yielding products, but at the same time staying safer than the lowest part of the equity capital structure,” he said. “They’re stepping down from investment grade but staying in fixed income and an asset class that has demonstrated lower probability of default and a higher recovery.”
Could it be, as Anish Butani, senior director of private markets at investment consultancy bfinance, put it to us earlier this year, that high-yielding infrastructure debt is “the new core infrastructure equity”? There is indeed an element of that in the growth of high-yielding strategies, but infrastructure debt more generally is providing investors with a comfort zone in an age of unpredictability.
In bfinance’s Q1 2021 report released last month, infrastructure was a beacon of stability, comprising 35 percent of new manager searches for investors in the 12 months up to 31 March 2021, the same figure as the previous 12 months. Private debt, though, comprised 31 percent of searches up to 31 March 2021, having been at 11 percent in the previous year.
The increased appetite for private debt was also reflected in the 2021 Natixis Investment Managers Global Survey of Institutional Investors, published last week. The 500 investors surveyed were asked how they prefer to access the private debt market, with 45 percent opting for direct lending. After that, 40 percent chose infrastructure, ahead of strategies such as co-investment, distressed debt and mezzanine financing.
Infrastructure debt is not just a growing part of the infrastructure investment market, then. Thanks to its traditional lower default and higher recovery characteristics – combined with the environment in which it’s operating – it is also becoming a key plank in the private debt space. In that sense, it is making good on the promise we highlighted this time last year.
Perhaps when BlackRock embarks on its next round of infrastructure debt fundraising, Balchandani won’t be so surprised by the war chest he amasses.