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Talking point: Infra debt now a key plank in the private debt space

Once considered niche by both infra and private debt investors, infrastructure debt has become an important part of how LPs allocate.

In June 2020, 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, while also warning that future large-scale lockdowns could derail that momentum.

Even despite lockdowns, infrastructure debt remains on track, as highlighted by BlackRock Real Assets’ $1.67 billion close in the middle of June 2021 of its Global Infrastructure Debt Fund – its maiden junior debt vehicle.

$1.67bn

Size of BlackRock Real Assets’ Global Infrastructure Debt Fund

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.”

In bfinance’s Q1 2021 report published in May, 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.

Increased appetite

The growing appetite for private debt was also reflected in the 2021 Natixis Investment Managers Global Survey of Institutional Investors, published in June. 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 is 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.