The Last Word: Edmond de Rothschild Asset Management

What are the opportunities you see in infrastructure debt?

What is still an opportunity in the industry is to be able to pool significant amounts from institutions under a fund format or via managed accounts. The challenge is to convince a pool of investors that you can invest the money appropriately through the broadest investment strategy. We started the BRIDGE platform as part of our commitment to infrastructure and sustainable development.

Q How does BRIDGE I operate, and what deals did you make with the fund?

There was a perception that the market was crowded, so we had to ask ourselves what is the value that we can bring to investors. We tried to take a step further in going directly to sponsors to source investments and structuring the deals alongside them. We need to have the yield factor in mind, but the long-term visibility and security of the assets is what makes the sector attractive. BRIDGE I is currently 73 percent deployed across France, Germany, Austria, Belgium and the UK, with a portfolio of assets in transport, social (PFI and health) and energy.

Q How has the market for infrastructure debt funds evolved since the launch of the first fund?

We see deals in Europe that need refinancing (sometimes due to significant maintenance and refurbishments) in additional to the traditional flow of new projects. The next six months will be interesting in terms of pricing trends as, in some countries, we observed a pick-up in spreads of 20, 30 40 basis points on recent transactions. We try to capitalise on the fact that some traditional lenders may be in or out of the private debt market by becoming a long-term and stable source of debt financing for sponsors. Are we slowly seeing the effects of Basel III? That is still a question as banks are still strong, but some sponsors seem keen to use institution-backed liquidity.

Q What benefits does an infrastructure debt fund bring to an investor’s portfolio?

There is a natural ability to diversify because of all the sectors you can cover, such as transport, social, utilities, energy, telecoms etc, and there are so many sub-sectors to these. Although the structuring of senior debt instruments focuses largely on a comprehensive set of covenants and a comprehensive security package, the asset’s ability to generate stable long-term revenue is key. The asset in itself should be sound by nature, but achieving a robust credit worthiness (from BB to solid investment grade) also ensures a low default probability. 

Q What are the key risks in the infrastructure debt market and how would you mitigate against them?

It’s a different situation each time and this is where the experience of the team is key. We try not to end up in the pitfall of working by benchmark and “doing it again”. With experience you somehow realise that each new project is a blank page. Like a painter you have your technique and your tools, but you’re always creating a new piece. 

Q How competitive is the infrastructure debt fund market and how do you maintain your edge over your competitors?

The market is quite competitive, but we like to think we are working with peers. There is room for traditional lenders and new players like us, with a strong and experienced investment team. We can lend on a sole basis or institutions or banks. Our ability to act as mandated lead arranger positioned us in 2015 as a second-generation fund and our pipeline is strong as a consequence. Our key challenge now is to have a successful second fundraising to establish ourselves as a long-term player.