Infrastructure debt is an “emerging” asset class that has the potential to make a strong contribution to the building of Australian infrastructure, according to the biggest infrastructure investor in the country, IFM Investors.
In a speech given today at a Committee for Economic Development of Australia (CEDA) event, IFM Investors Global Head of Infrastructure Debt Robin Miller argued that infrastructure debt funding should be a key part of developing infrastructure and thus developing the economic capacity and productivity of the nation.
But he warned that the liquidity needs of the super system as well as a patchy asset supply and a less compelling relative value imperative was hindering the domestic infrastructure debt market, compared to overseas.
“Infrastructure debt is gradually getting prominence as an asset class in Australia,” Mr. Miller said.
“Banks are now viewing institutional capital as complimentary not competing, and there are some excellent local assets in Australia which are being managed the right way and delivering strong returns.”
“Whilst infrastructure debt is an emerging asset class globally, with very strong interest in the US and Europe, Australia has pioneered it as an asset class and we are now well placed to leverage that expertise.”
Mr. Miller said however that despite the pioneering work, allocations to infrastructure debt were rising slowly in Australia compared to overseas markets.
“In Australia, superannuation’s greater need for overall portfolio liquidity also impacts on the growth of infrastructure debt for institutional investors. Domestically we are also constrained by a patchy deal flow in a small economy relative to the major developed economies.”
“The value proposition for the asset class overseas is also far more compelling than Australia at the moment.”
“The liquidity needs of our super system needs to be looked at holistically before infrastructure debt, along with other alternatives, can truly fulfill its potential for investors or the national interest.”