Investors should define infrastructure debt correctly
Private infrastructure debt delivers better risk-adjusted returns than corporate debt only when it is narrowly and correctly defined, according to the analysis by the EDHEC Infrastructure Institute private debt index.
According to its study, the senior project finance debt had a consistently higher risk-adjusted performance (sharpe ratio) than both the debt of ‘infrastructure corporates’ and investment grade corporate debt, while the latter two had very similar investment profiles.
EDHECinfra’s director, Frederic Blanc-Brude, said: “Correctly defining infrastructure investment by focusing on financial and economic characteristics rather than industrial sector codes is essential to make this asset class evolve towards maturity.
“These results show that project finance debt is unique but infrastructure corporate debt to much less so.”
The EDHECinfra Private Debt All Infrastructure Europe index was designed to track the performance of hundreds of borrowers and thousands of private debt instruments over the past 20 years.
According to the company, while the broad market private infrastructure debt index out-performed the corporate debt reference over the period, the study showed that most of contribution was driven by project finance debt.
Anne-Christine Champion, champion of Natixix, sponsor of the EDHECinfra chair for the development of the index, said: “These are two different forms of corporate governance, hence the difference of behaviour and credit risk of borrowers.
“Project finance is about creating long-term, resilient financial instruments that are typically not found on corporate balance sheets.”
AUTHOR
Oksana Patron
Recommended for you
Family office Lederer Group has progressed its takeover bid for the Elanor Commercial Property Fund, lodging a bidder’s statement with ASIC as it says the fund has been “unable to agree” on negotiation terms.
Magellan Financial Group is keen to enact further strategic expansions with income from strategic partnerships tripling to $31.1 million from the addition of Vinva during FY25.
Outflows have doubled in the property and infrastructure space to $1.3 billion with advisers instead favouring private markets as Morningstar data finds active property funds are struggling to outperform.
Fund manager HMC Capital is seeking to expand fundraising for its private equity vehicle into wholesale platforms now that it has achieved a three-year track record, while scrapping plans for a second fund.
