Right idea, wrong time

Just too late for the latest issue of Private Debt Investor, which incidentally features a special feature on infrastructure debt, comes the news today that Hadrian’s Wall is to wind up.

Our esteemed colleagues at Infrastructure Investor today report that the firm’s maiden vehicle, Aviva Investors Hadrian Capital Fund 1, is to return all the capital committed by its investors having failed to complete a deal.

“Due to the shortage of investment opportunities, the current competitive environment, falling interest rates and tightening credit spreads, I did not feel the fund would be able to deliver its targeted returns to investors. It was a tough decision, but as a result, we have recommended giving the money we raised back to our LPs,” Marc Bajer, chief executive of Hadrian’s Wall Capital, explained.

The fund was certainly ambitious. Bajer (correctly in Private Debt Investor’s view) identified a developing gap in the infrastructure financing market created by banks’ retrenchment post-crisis. His aim was to lure institutional investors back into the space, and set about devising a fund to do just that.

Two elements of the fund raise eyebrows: first, the size. Hadrian’s Wall originally sought more than €1 billion in commitments, which for a maiden fund is highly ambitious. Second, the strategy could be described as complicated. The idea was the fund would use capital to credit-enhance infrastructure bonds into A-rated territory, using fully-funded subordinated debt positions within senior-ranking infrastructure bonds. The firm would also offer comprehensive managing creditor services. And to top it all off, the fund would be a dual currency vehicle.

One of the first rules of fundraising, particularly if you’re coming to market for the first time, is to keep the messaging simple. You could argue Hadrian’s Wall’s vehicle did itself no favours on that front.

It evidently found favour with some investors however – Aviva committed to the vehicle, as did the European Investment Bank and the Development Bank of Japan. And if imitation is the sincerest form of flattery, the EIB paid the ultimate tribute by ‘copying’ the Hadrian’s Wall concept as the basis of its Project Bond initiative.

Yet the €150 million it garnered was well short of its target, and took two years to raise.

People often talk of first-mover advantage, but in some cases (walking into a minefield, for example), it’s a poisoned chalice. Bajer was unlucky – he had the right idea, but in the time taken to put the fund together, a whole new market grew up around him offering simpler solutions to the infrastructure funding problem. Government-issued project bonds, for example, were always going to undercut privately-sourced debt products, and the new wave of infrastructure debt funds have been raised with, on the whole, straightforward strategies based around long-dated, senior-secured loans.