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White paper infrastructure series – Part 1

The case for infrastructure debt

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The infrastructure market has evolved from a bank-dominated market less than 10 years ago, to one with a growing institutional investor presence. The fundamental drivers are regulatory change and the search for yield. The introduction of Basel III penalized banks for lending longterm, while amendments to Solvency II made infrastructure more attractive for European insurance companies. In addition, institutional investors' appetite for higher-yielding alternatives, such as infrastructure, has grown as returns in traditional fixed income markets have become compressed by loose monetary policy.

As a percentage of assets under management (AUM), institutional investment in infrastructure is still low at 1.1% in OECD counties, albeit the percentage has doubled since 2012. According to Preqin, institutional interest in the sector is strong: 89% of infrastructure investors surveyed plan to maintain or increase their allocation to the asset class next year.

In Europe, the activity in the debt fund market has been steadily growing. Since 2013 around EUR 7 billion of debt funds have been raised; six funds totaling EUR 2.6 billion were raised in 2016, a record. However, banks continue to maintain a high share (circa 90%) of the private infrastructure debt market.

Source : UBS AG

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