The appointments expand the leadership group to reflect AMP Capital’s strategy to grow in the world’s largest asset management markets and ensure both clients and investment expertise are represented.

AMP Capital CEO Boe Pahari said: “AMP Capital’s success will be determined by our global representation, client centricity and strong heritage and foundation, and the appointments we have made today reflect that. We are building a client-led, globally integrated investment platform to further increase access to global capital and drive collaboration across our teams to deliver better outcomes for clients.

“We are drawing on the talents within our business and seeking to bring a diversity of views to the leadership group. This group will develop and execute AMP Capital’s new strategy. I’m excited by what we will achieve together, as we continue to export our investment excellence to a global market, particularly in real assets.”

Summary of the changes:

• Patrick Trears has been appointed Global Head of Infrastructure Debt, based in the US. The appointment reflects the importance of North America in infrastructure debt, which is one of our largest markets for current and potential clients and deal opportunities. Patrick, who is currently Head of Infrastructure Debt in the US, will succeed Andrew Jones, who will now leave AMP Capital.
• Tim Smith has been appointed Head of International Distribution. Currently head of American and European distribution, Tim will be elevated to the leadership group.
• Aideen O’Donovan has been appointed Chief Financial Officer, replacing Adrian Williams, who is stepping down from his role as the Acting Chief Financial Officer and Chief Operating Officer (COO) for personal reasons. Aideen is currently Head of Finance and will join the leadership group.
• Simon Joiner has been appointed Chief Operating Officer, picking up Adrian Williams’ COO duties. Simon is currently COO in the North West region and will expand his remit and join the leadership group. Adrian will take on the role of Global Transition Manager to oversee the separation of the functions until the end of the year.
• Simon Ellis, currently Partner, Infrastructure Equity has been appointed as Head of Americas. Partners Infrastructure Equity, Matt Evans and Ruben Bhagobati have been appointed Co-Heads of Europe. These three new roles in key international markets will look to drive growth across their respective regions, beyond their own investment capability roles.
• After five successful years of building the Real Estate business, Carmel Hourigan has decided to leave AMP Capital to take up a new role at Charter Hall. A process to replace Carmel has already commenced and Carmel will remain in the role to manage an orderly handover of responsibilities.
• With Madeleine Mac Mahon’s decision to resign after 12 years with the business, Lisa Hurley and Lauren Crystal, currently AMP Capital People & Culture Business Partners, have been appointed Co-Heads of People & Culture. Lisa and Lauren will be members of the leadership group.

There are no changes to the roles of: Managing Director Asia Pacific, Craig Keary; Global Head of Public Markets, Simon Warner; General Counsel, Yen Hui Tie; and Chief Risk Officer, Natalie Kooyman, who will all remain members of the leadership group.

Mr Pahari said: “I’d like to thank Madeleine and Adrian for the important role they have played in the development of AMP Capital. Andrew has done an outstanding job to build our infrastructure debt business, particularly the success of the IDF series. They each leave with our best wishes. I’d also like to congratulate Carmel on her new role and wish her every success for her new challenge.

“Pleasingly we’re able to take advantage of the deep pools of internal talent, and combined with our established leadership group, we will continue to build upon our culture underpinned by performance, excellence and inclusion.”

The leadership group announced today will develop and deliver AMP Capital’s strategy, to be announced at AMP’s Half Year results on 13 August 2020.

Andrew Jones

In the first of a two-part series on asset allocation and infrastructure debt, Andrew Jones, Global Head of Infrastructure Debt at AMP Capital, provides a framework for considering infrastructure debt in the context of a diversified portfolio.

Infrastructure debt is increasingly popular with investors, as evidenced by our $6.2 billion fundraise for AMP Capital IDF IV in late 2019. But when considering adding infrastructure debt to their portfolios, many investors are still grappling with where in their portfolio this allocation should sit.

The resilience of this relatively young asset class, which emerged in its current form after the global financial crisis and ensuing regulations such as Basel III as banks reduced their large-scale lending activities and institutional investors stepped in, has just been tested in its first global crisis. We are pleased that the essential nature of the robust businesses we lend to and our carefully-negotiated covenants have meant that no loans in our portfolio have needed to be renegotiated, while some sectors – including digital infrastructure, a focus for us – are performing very strongly.

Delivering for institutions

Infrastructure debt continues to deliver outcomes that institutional investors seek. As we look set to continue in a low-rate environment following the current economic crisis, the consistent yield of infrastructure debt, along with its defensive nature, will continue to be prized.

For insurers in particular, infrastructure debt offers an additional benefit. In terms of regulatory capital treatment, infrastructure debt can qualify for a relatively low capital requirement. Under Solvency II regulation in Europe for example, private subordinated infrastructure debt is treated relatively favourably compared to other private market assets and equivalent corporate credit. In Korea there is a regulatory regime for insurers which has similarities to the European model. Infrastructure debt again has a relatively attractive treatment and thus results in a relatively low capital requirement for investors governed by these rules. This makes the asset class appealing to many Korean insurance companies.

Where does infrastructure debt fit in?

Demand for infrastructure debt funds continue to increase, and as institutional investors build their holdings, they need to think carefully about the outcomes they are looking for from their infrastructure debt allocation, and where the asset class can complement their existing holdings and offer diversification. As a relatively new asset class, infrastructure debt has the potential to fit within many traditional buckets of a portfolio, outlined below.

Real assets

This bucket invests in tangible investments with intrinsic value due to their physical properties – such as real estate, infrastructure and resources such as commodities, timber and agriculture. This illiquid asset class offers inflation-hedging and a low correlation to equities and bonds. The risk/return profile of the real assets can range widely, and they can be accessed through equity or debt investments.

Infrastructure debt complements these assets as a component of a real assets portfolio, as it is less driven by macro-economic conditions than real estate investments and commodities, which tend to be more cyclical and sensitive to market environment.

Infrastructure

Many investors are now considering infrastructure an essential part of their asset allocation. Within an infrastructure portfolio, which typically is largely infrastructure equity, infrastructure debt can serve a variety of roles. For investors who are seeking the low volatility, high-yielding cashflows of core infrastructure, but who find difficulty deploying capital at attractive return levels in the highly competitive environment for core assets, subordinated infrastructure debt presents an excellent alternative, as annual yields are around 8-10%. For those with exposure to higher-returning infrastructure strategies, subordinated debt can complement and drive cash yield across the portfolio. Value-add infrastructure equity funds will typically target lower cash yields in the first part of the fund’s life as capital is reinvested to drive business growth. Pairing such an investment with a high-yielding infrastructure debt strategy helps ensure the portfolio is cash-generative from the outset.

Adding infrastructure debt to an infrastructure equity allocation can balance the risk profile. Infrastructure debt tends to have lower volatility than infrastructure equity investments and adds even more defensive characteristics to the portfolio. In a stressed market environment, subordinated debt ranks ahead of equity and will be less impacted by market shocks.

Alternatives

Alternatives can be a ‘catch-all’ category that encompasses all assets that are unlisted and illiquid. A typical alternatives allocation can include hedge funds and private equity investments, but also infrastructure and private debt. The role of an alternatives allocation is to provide diversification and deliver attractive absolute returns.

Investors who look to their alternatives allocation for diversification would consider infrastructure debt as a defensive allocation due to its low correlation and low volatility characteristics. It can be grouped with more defensive hedge fund strategies and alternative beta strategies.

On the other hand, investors who are seeking high risk-adjusted returns from their Alternatives allocation may look at private subordinated infrastructure debt for its higher yield and illiquidity and complexity premia.

Fixed income

The Fixed Income allocation generally includes investments in liquid and public markets such as treasuries, corporate credit (e.g. investment grade or high yield debt) and sovereign credit. The main drivers of a fixed income allocation are the yield and lower volatility of the investment. Investors who consider infrastructure debt as part of their fixed income allocation look to the allocation as a liability match from cashflows; they are not necessarily allocating to the space to generate outsized risk/returns, but rather for stable cash yield. The relative illiquidity of infrastructure debt distinguishes it from the bulk of assets in the bucket.

Private debt

Private debt, which can include corporate private debt or asset-backed lending strategies, has grown in popularity in recent years. Within corporate private debt strategies, the focus is on cashflows of the borrower to secure the loan, while asset-backed lending strategies are secured by collateral of real estate, infrastructure or other assets such as aircrafts. The structure of private debt strategies, typically closed-end funds, is similar to private equity allocations. Private debt strategies in general may be prone to market cyclicality and performance can differ throughout market cycles: for example, an investor can be more opportunistic with a distressed debt strategy after a severe market downturn to invest at cheaper levels.

Infrastructure debt offers returns comparable to corporate and asset-backed lending strategies, with low correlation. Loans are typically provided to a ring-fenced, bankruptcy-remote entity and secured on a second lien or similar basis against an individual asset or portfolio of assets. The underlying assets are backed by long-term contracted cash flows with investment grade off-takers, or regulator-determined tariffs. This can insulate assets from market movements, driving down correlation with cyclical sectors.

Infrastructure debt is a versatile asset class – defensive, diversifying, with a relatively high cash yield –  and investors are recognising its value in asset allocation.

Read the paper.

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Andrew Jones

In the first of a two-part series on asset allocation and infrastructure debt, Andrew Jones, Global Head of Infrastructure Debt at AMP Capital, provides a framework for considering infrastructure debt in the context of a diversified portfolio.

Infrastructure debt is increasingly popular with investors, as evidenced by our $6.2 billion fundraise for AMP Capital IDF IV in late 2019. But when considering adding infrastructure debt to their portfolios, many investors are still grappling with where in their portfolio this allocation should sit.

The resilience of this relatively young asset class, which emerged in its current form after the global financial crisis and ensuing regulations such as Basel III as banks reduced their large-scale lending activities and institutional investors stepped in, has just been tested in its first global crisis. We are pleased that the essential nature of the robust businesses we lend to and our carefully-negotiated covenants have meant that no loans in our portfolio have needed to be renegotiated, while some sectors – including digital infrastructure, a focus for us – are performing very strongly.

Delivering for institutions

Infrastructure debt continues to deliver outcomes that institutional investors seek. As we look set to continue in a low-rate environment following the current economic crisis, the consistent yield of infrastructure debt, along with its defensive nature, will continue to be prized.

For insurers in particular, infrastructure debt offers an additional benefit. In terms of regulatory capital treatment, infrastructure debt can qualify for a relatively low capital requirement. Under Solvency II regulation in Europe for example, private subordinated infrastructure debt is treated relatively favourably compared to other private market assets and equivalent corporate credit. In Korea there is a regulatory regime for insurers which has similarities to the European model. Infrastructure debt again has a relatively attractive treatment and thus results in a relatively low capital requirement for investors governed by these rules. This makes the asset class appealing to many Korean insurance companies.

Where does infrastructure debt fit in?

Demand for infrastructure debt funds continue to increase, and as institutional investors build their holdings, they need to think carefully about the outcomes they are looking for from their infrastructure debt allocation, and where the asset class can complement their existing holdings and offer diversification. As a relatively new asset class, infrastructure debt has the potential to fit within many traditional buckets of a portfolio, outlined below.

Real assets

This bucket invests in tangible investments with intrinsic value due to their physical properties – such as real estate, infrastructure and resources such as commodities, timber and agriculture. This illiquid asset class offers inflation-hedging and a low correlation to equities and bonds. The risk/return profile of the real assets can range widely, and they can be accessed through equity or debt investments.

Infrastructure debt complements these assets as a component of a real assets portfolio, as it is less driven by macro-economic conditions than real estate investments and commodities, which tend to be more cyclical and sensitive to market environment.

Infrastructure

Many investors are now considering infrastructure an essential part of their asset allocation. Within an infrastructure portfolio, which typically is largely infrastructure equity, infrastructure debt can serve a variety of roles. For investors who are seeking the low volatility, high-yielding cashflows of core infrastructure, but who find difficulty deploying capital at attractive return levels in the highly competitive environment for core assets, subordinated infrastructure debt presents an excellent alternative, as annual yields are around 8-10%. For those with exposure to higher-returning infrastructure strategies, subordinated debt can complement and drive cash yield across the portfolio. Value-add infrastructure equity funds will typically target lower cash yields in the first part of the fund’s life as capital is reinvested to drive business growth. Pairing such an investment with a high-yielding infrastructure debt strategy helps ensure the portfolio is cash-generative from the outset.

Adding infrastructure debt to an infrastructure equity allocation can balance the risk profile. Infrastructure debt tends to have lower volatility than infrastructure equity investments and adds even more defensive characteristics to the portfolio. In a stressed market environment, subordinated debt ranks ahead of equity and will be less impacted by market shocks.

Alternatives

Alternatives can be a ‘catch-all’ category that encompasses all assets that are unlisted and illiquid. A typical alternatives allocation can include hedge funds and private equity investments, but also infrastructure and private debt. The role of an alternatives allocation is to provide diversification and deliver attractive absolute returns.

Investors who look to their alternatives allocation for diversification would consider infrastructure debt as a defensive allocation due to its low correlation and low volatility characteristics. It can be grouped with more defensive hedge fund strategies and alternative beta strategies.

On the other hand, investors who are seeking high risk-adjusted returns from their Alternatives allocation may look at private subordinated infrastructure debt for its higher yield and illiquidity and complexity premia.

Fixed income

The Fixed Income allocation generally includes investments in liquid and public markets such as treasuries, corporate credit (e.g. investment grade or high yield debt) and sovereign credit. The main drivers of a fixed income allocation are the yield and lower volatility of the investment. Investors who consider infrastructure debt as part of their fixed income allocation look to the allocation as a liability match from cashflows; they are not necessarily allocating to the space to generate outsized risk/returns, but rather for stable cash yield. The relative illiquidity of infrastructure debt distinguishes it from the bulk of assets in the bucket.

Private debt

Private debt, which can include corporate private debt or asset-backed lending strategies, has grown in popularity in recent years. Within corporate private debt strategies, the focus is on cashflows of the borrower to secure the loan, while asset-backed lending strategies are secured by collateral of real estate, infrastructure or other assets such as aircrafts. The structure of private debt strategies, typically closed-end funds, is similar to private equity allocations. Private debt strategies in general may be prone to market cyclicality and performance can differ throughout market cycles: for example, an investor can be more opportunistic with a distressed debt strategy after a severe market downturn to invest at cheaper levels.

Infrastructure debt offers returns comparable to corporate and asset-backed lending strategies, with low correlation. Loans are typically provided to a ring-fenced, bankruptcy-remote entity and secured on a second lien or similar basis against an individual asset or portfolio of assets. The underlying assets are backed by long-term contracted cash flows with investment grade off-takers, or regulator-determined tariffs. This can insulate assets from market movements, driving down correlation with cyclical sectors.

Infrastructure debt is a versatile asset class – defensive, diversifying, with a relatively high cash yield –  and investors are recognising its value in asset allocation.

Read the paper.

The post Using infrastructure debt in a diversified portfolio appeared first on AdviserVoice.

Andrew Jones

Following AMP Capital’s record US$6.2 billion fundraise, which brought in commitments from 86 institutions in less than a year, Andrew Jones, Global Head of Infrastructure Debt, explains why infrastructure debt is attracting so much attention.

After years in the background, infrastructure debt has found itself in the spotlight. Its return profile offers solutions that are increasingly challenging to achieve in the current economic climate. The characteristics of infrastructure debt, including long-term contracted cash flows, regulated environments and a low correlation with traditional asset classes, are proving very attractive to institutional investors.

Hunting for yield

The Federal Reserve has cut rates twice in the second half of 2019. The Bank of England has set rates not much above 300-year lows. The Bank of Japan’s 10-year government bond yield has been negative most of the year. In Australia, the official cash rate is at historic lows, and most economists are expecting further cuts will be made. In 2019, it’s tough for investors to find both yield and security.

Enter higher-yielding infrastructure debt, an asset class that has emerged relatively recently, and thus has been less understood. Mezzanine or subordinated infrastructure debt sits between senior debt and equity in the capital structure. It commands a higher yield than senior debt, and the stable nature of infrastructure assets – as well as protections lenders can build into their loan structure – means default rates are generally low.

The asset class has been around for more than 20 years, and now has a track record which demonstrates good, stable returns. It is also not cyclical, which can be advantageous in any portfolio.

Seeking stability

Infrastructure assets provide essential services and we prefer to invest in regulated and contractual environments. The asset class performs across market cycles and works best when there is political stability and mature legal, tax and accounting frameworks.

We have found that the investments delivering the characteristics our investors expect tend to come in one of two places. The first is in existing regulated environments such as water utility companies and gas distribution pipelines. When there is only one such asset in a region and the sector is regulated, we can be confident of the returns that business will generate. The second is lending to businesses which have long-term contracts in place. For example, a gas-fired power station might have contracts to sell power to third parties, and have visibility on the price the power will be sold at and the volume that will be sold for the coming years, allowing us to lend with confidence in the asset’s cash flow with low volatility.

Early mover advantage

Existing players in the infrastructure debt market have a comparative advantage, simply because of the high barriers to entry for other players. The investment team must negotiate strong covenants with high protection for investors and implement a rigorous credit process and due diligence on the borrower. A secured infrastructure debt opportunity will typically have very detailed financial covenants, negative and positive undertakings by the borrower and a comprehensive security structure which includes fixed and floating charges over all the assets of the company we are lending to.

Subordinated infrastructure debt’s track record, based on our investments since 2001, shows attractive returns throughout the cycle. But at various points in the economic cycle, the opportunities for our strategy are particularly strong. We are at one of those points now because the amount of capital that infrastructure equity investors are looking to invest has pushed asset prices up; debt is required for these transactions, and there are few managers in the market with the scale to provide significant cheques in subordinated infrastructure debt to a single asset.

The AMP Capital view

For institutional investors looking for long-dated products with stable cashflows and genuine defensive characteristics, infrastructure debt often fits the bill.

AMP Capital’s infrastructure debt strategy has an emphasis on stable long-term yields with low volatility. We prefer to be a lead arranger on deals, as we provide capital for acquisitions, refinancing and ‘alternative to exit’ solutions for asset owners. AMP Capital is the world’s fifth largest investor in infrastructure debt according to Infrastructure Investor’s rankings (considering AUM as at Q3 2018).

Each generation of our strategy makes around 15 investments, which vary in size from $75m to $500 million, with a typical maturity of seven or eight years.

Energy assets across Europe and the United States are currently attracting a lot of investor interest while utilities are stable. The renewables sector in particular offers good opportunities across Europe and the United States.

Communications infrastructure is another attractive sector, spurred on by the roll out of mobile phone towers for 5G networks across the United States, and digital infrastructure, such as fibre networks and data centres, is a significant theme within infrastructure.

Andrew Jones

AMP Capital has announced a record US$6.2 billion fundraise for its fourth infrastructure debt strategy, which includes the final close of the AMP Capital Infrastructure Debt Fund IV (IDF IV), co-investment rights and separately managed account commitments.

Central to the fundraise is the final close of the IDF IV, which reached its hard cap of US$4.0 billion, surpassing its US$3.5 billion target.  An additional US$1.0 billion was secured in co-investment rights and a further US$1.2 billion from investors wanting access to AMP Capital’s infrastructure debt deal capabilities.

This is AMP Capital’s largest closed-end fund ever and is believed to be the largest fundraise in the world for an infrastructure mezzanine debt strategy.

AMP Capital Global Head of Infrastructure Debt Andrew Jones said: “We’re thrilled with the level of interest we’ve received for our fourth infrastructure debt strategy.  In less than a year, a total of 86 investors from 14 countries invested in IDF IV with strong demand from institutional investors in Korea, Japan, Canada and the UK.

“More than 30 institutional investors joined the strategy for the first time, which is testament to the growth of our global distribution network and an indication of the increasing demand for infrastructure debt investments. Approximately US$1.2 billion was raised in Korea alone, where we continue to have strong interest from new and existing clients.”

During the year, more than US$2 billion of funds raised has been deployed into 10 high-quality assets located around the world, including a district heating business in Europe and a data centre in North America.

Mr Jones commented: “We’re now focused on securing quality investments to deploy the remainder of the capital with a focus on energy, utilities, digital technology and transport infrastructure in OECD and developed countries.  We have strong expertise in these sectors and are excited by the pipeline of investment opportunities we’re evaluating for our investors.”

The successful fundraise continues AMP Capital’s growth momentum in real assets – infrastructure and real estate – and further cements its reputation as a global leader in both equity and debt investments.

The fundraise follows the success of AMP Capital’s Infrastructure Debt Fund III, which raised US$2.5 billion and an additional US$1.6 billion in co-investment and other commitments in 2017.

AMP Capital’s infrastructure debt team comprises 16 investment professionals located in London, New York and Sydney.  Since 2001 the team has invested more than US$7.4 billion in 76 assets.

Mr Heinen joins from CIBC Capital Markets, where he was an analyst covering project and acquisition finance transactions in the infrastructure sector. Prior to that, he was a credit analyst at Moody’s Investors Service. He has an MSc in Economics & Management from the London School of Economics and is a CFA charterholder.

Prior to joining AMP Capital, Mr Frances worked at Citigroup as an Investment Banking Associate where he structured, analysed and underwrote project finance credit transactions in the transportation, power, energy and midstream sectors across the Americas. Mr Frances holds a Bachelor in Economics from Boston College.

Commenting on the hires, Global Head of Infrastructure Debt Andrew Jones said: “We are seeing great demand from investors in our infrastructure debt strategy and have made significant deployments this year. We are delighted to welcome our new associates as we strengthen and grow the global team, allowing us to continue to find highly attractive investment opportunities on behalf of our clients.”

AMP Capital’s infrastructure debt now comprises 16 people in London, New York and Sydney.

Adam Tindall

AMP Capital has opened a new representative office  in Dubai and appointed an Institutional Director, Sudhanshu Garg, who will be  responsible for introducing AMP Capital’s real assets capabilities to clients across the Gulf Cooperation Council (GCC).

AMP Capital CEO Adam Tindall; Boe Pahari, Director,  North West Region at AMP Capital; Andrew Jones, AMP Capital Global Head of  Infrastructure Debt; and Mr Garg officially opened the new office at a launch event in Dubai attended by clients and prospective investors.

The office is located within the Dubai  International Financial Centre Authority (DIFC), the financial services hub for the Middle East, which offers companies unparalleled access to the broader  region.

Mr Pahari said: “As AMP Capital continues its  global expansion strategy, it makes sense to have an on-the-ground presence in  Dubai, which is the gateway to the Middle East and a potential high-growth market for us.

“AMP Capital has built strong relationships with clients in the GCC over many years and the appointment of Sudhanshu, with his  strong financial services experience and excellent local networks, provides us the opportunity to further cement our presence in this important and  fast-growing region.”

Middle East institutional investors were among the clients who committed money to AMP Capital’s Infrastructure Debt Fund III, which  reached final close in August 2017 after exceeding its US$2.5 billion hard cap and attracting a further US $1.6 billion in commitments. The fundraise is believed to be one of the largest in the world for an infrastructure debt strategy.

Mr Garg has more than 23 years’ experience across a broad range of banking and financial services roles. He has held senior management roles at ABN Amro in Dubai and later as a Senior Vice President at Royal Bank of Scotland where he was Head of Financial Institutional business for the Middle East.  Most recently he was managing a consultancy business in Dubai where he was instrumental in advising on various investment product development, product structuring and managing key external relationships on behalf of the business.

IDF  III, the third infrastructure debt fund launched by AMP Capital in six years,  had a target of US$2 billion.

The fundraise  is believed to be one of the largest in the world for an infrastructure debt strategy.

More than 125  investors from 12 countries have invested in IDF III, with strong interest from  institutional investors in Japan, Korea, Canada and Germany.

AMP  Capital Global Head of Infrastructure Debt Andrew Jones said: “I’m thrilled at  the level of confidence in the infrastructure debt asset class and our team as  evidenced by our successful fundraise for Infrastructure Debt Fund III.

“We have exceeded our expectations, attracting interest beyond the fund’s hard cap of  US$2.5 billion and securing an additional US$1.6 billion in co-investment and other commitments for infrastructure debt deals brokered by AMP Capital. These commitments will be called on after the  fund makes its allocation to each investment.

“We had  success in new markets such as Korea, where we raised more than US$300 million, and Canada where some of the country’s large pension plans invested in our strategy for the first time. Japanese investors, early adopters of infrastructure debt as an investment strategy, were also strong supporters of the fund.

“Infrastructure  mezzanine debt appeals to investors looking for an attractive yield with  capital stability and it is growing in prominence among pension plans and insurance companies in particular.”

IDF III has  an investment period of four years. Mr Jones added: “Our focus is now on  finding great assets on behalf of our IDF III investors. We have already  secured four high quality assets for the fund and are seeing further  opportunities across a range of sectors including renewables,  telecommunications and energy distribution in OECD countries. Infrastructure companies increasingly view  private mezzanine debt as an ideal source of funding for a range of their specialised financing needs.”

AMP Capital’s  first infrastructure debt fund was closed to new investment in 2012 after  raising US$500 million globally. Its second fund, IDF II, raised US$1.1  billion, with US$250 million in additional co- investment pledges.

Overall, the  team, which comprises 13 investment professionals located in London, New York  and Sydney, has invested more than US$3.5 billion in 59 infrastructure debt assets since 2001.

Japanese investors key in funding for global infrastructure and real estate.

Investors from Japan are primed to play a key funding role for global infrastructure and real estate, according to analysis from AMP Capital.

With assets under management approaching ¥500 trillion (approximately US$4.4 trillion), the Japanese institutional investment environment is undergoing a transformation and represents a substantial source of capital for investment into real assets across the globe.

AMP Capital Managing Director, Japan, Toshiaki Yamashita said: “The unique characteristics of the market in Japan have impacted investor sentiment and behaviour as few other economies have experienced as long a period of low growth and low yield.  Japanese investors, both retail and institutional, are broadly seen as conservative, with more than 50 per cent of financial assets in deposits and approximately 5 per cent in investment trusts.  This allocation may change, however, as government policies encourage investors to shift from deposits to investments, investors begin seeking higher-yielding assets after a prolonged period of low growth, and an easing of institutional investors’ aversion to risk.”

Japan’s institutional investment market, comprising corporate pensions, public pensions and financial institutions, are near universally arranged as defined benefit schemes, which further underscores the need for the consistent income streams that may be offered by real assets investment.

Infrastructure debt is expected to be one of the beneficiaries of a growing thirst for alternatives with the asset class rising to prominence in a relatively short period of time.  It represented just 6 per cent of infrastructure funds that completed fundraising in 2009 compared with almost a quarter of funds in 2015.

AMP Capital Global Head of Infrastructure Debt Andrew Jones said: “The largest proportion of investors with a preference for unlisted infrastructure debt is based in Asia and we see a significant growth opportunity in this market.  In Japan, banks and investment banks make up the largest proportion of investors as they tend to have the resources and expertise to invest in the market as well as a more positive sentiment since the financial crisis.  Strong deal flow opportunities coupled with limited competition from alternative junior lenders provide the potential to generate the attractive risk-adjusted returns focused on cash yield these investors are looking for.”

On the listed side, Japanese retail investors have been early adopters of listed infrastructure.  Interest is beginning to broaden to the institutional market due to the challenges in accessing direct infrastructure allocations, the size of the listed market and a desire for liquidity.

Japanese investors have also demonstrated an appetite for global listed real estate and this is expected to grow.  Of particular focus for Japanese investors is likely to be the US REIT market as they seek income yield.

AMP Capital Head of Global Listed Real Estate James Maydew said: “Japan has been the second biggest market for asset exchange-traded fund flow in listed real estate in 2016 behind the US, and given the Bank of Japan has increased its allocation to Japanese REITs from 5 per cent to 10 per cent during 2016, we don’t expect this trend to change any time soon.  Even as cash rates start rising, the demand for listed real estate and its characteristics of diversification, stable cash flows and income yield will continue to be sought by Japanese and global investors.”

Mr Yamashita says Japanese institutional investors show a clear preference for assets that are lower risk and can consistently generate a low to mid-single-digit yield.

“Having experienced decades of low growth and limited domestic opportunities, these investors are hungry for investment alternatives. It’s a natural step for Japanese institutions to begin deploying capital to global infrastructure projects, which is a positive development for liquidity and will continue to support the globalisation and maturation of this market,” Mr Yamashita said.

During the past five years, Japanese investors have committed more than A$1 billion to AMP Capital-managed alternative funds, illustrating an increasingly comfortable approach to investing in infrastructure across asset classes including debt, equity and direct.

For further details on Japanese investment into global real assets, view the full analysis from AMP Capital, titled Generational Shift Sees Japanese Investors Flock to Real Assets, at http://www.ampcapital.com/AMPCapitalGlobal/media/contents/Articles/Insights-Papers/Perspectives-Japanese-investors-Vol3.pdf

Tim Humphreys

Tim Humphreys said “Next year is shaping up  to be an interesting time for financial markets as the post-Global Financial  Crisis bull market faces a key test: dealing with the US Federal Reserve’s rate  decisions. Some people believe low short-term interest rates have been positive  for financial markets and higher rates will therefore be negative. But markets are  not this simple and as long-term investors we are more focused on the long-term  borrowing cost and cost of capital.

“Much focus has been on the changes in the global oil market and the ‘lower for  longer’ crude oil environment, but our view is that we are in a ‘lower for  longer’ yield environment globally and despite an inevitable first rate hike,  we think the Fed will be cautious not to go too far as the rest of the world is  still weak.  Our view is that the strong  demand that we’ve experienced over the past decade for real assets that offer  high and sustainable yields will continue in 2016.”

Key trends for 2016: direct real estate

AMP Capital Global Head of  Property, Carmel Hourigan said: “Unlisted commercial property still provides  a very compelling investment proposition, particularly in Australia.   While cap rates continue to compress to historically low levels, Australian  real estate remains relatively attractive compared to other global markets and  asset classes and the income return alone is very compelling. Capital markets  will continue to be the most significant driver of investment performance  during the next 12 months.  Demand (particularly from offshore investors)  for high-quality Australian real estate is insatiable.  The fall in the  Australian dollar has only served to make Australian real estate more  attractive. The big differentiator to the last cycle is the fact that it’s  generally equity, not debt, driving pricing.  However, high quality real  estate is in limited supply and hence landmark’portfolio’ transactions are  commanding a lot of interest with a lot of domestic players priced out of the  race.  With major institutional investors from Japan, China and Norway yet  to put a toe in the water in Australia, we expect capital markets to remain  deep for some time yet.

“Double-digit  returns from unlisted core funds are likely to continue for a little longer but  funds need to be positioned for the next downturn.  We have been divesting  non-core assets to ensure portfolios are defensively positioned both in terms  of asset quality and location. Going into 2016, we have a strong bias to Sydney  and Melbourne office, and high quality regional shopping centres.”

Key trends for 2016: listed real estate

AMP Capital Deputy Head of  Global Listed Real Estate James Maydew said: “Europe is extremely  attractive; it’s in the early phases of significant monetary stimulus. Hard  assets with contractual income are well positioned to benefit from this and  listed real estate fits that criteria.  We  see great opportunity in certain core German cities – due to strong  urbanisation, immigration and net household formation – and Spanish office. We  expect certain Spanish markets to have some of the fastest growing rents in the  world over the next three years.

“M&A  is also likely to ramp up in 2016 globally as US Fed rate hikes create  volatility and dislocation in the markets.   This will present companies with a strong balance sheet and cost of  capital to acquire publicly listed real estate trading at discounts to the  direct market, given the ongoing arbitrage between the private and public  markets.

“Urbanisation  and infrastructure spend in global, gateway cities is also a strong theme.  Companies with assets or development  expertise in markets positively impacted by this structural trend will continue  to benefit in 2016 as rental values grind higher. London West End, Mid/Downtown  Manhattan and Central wards of Tokyo are large beneficiaries of this momentum,  and can be accessed via retail, office and residential depending on the city or  infrastructure project.  In Japan, there  is also value in the lodging sector, given the country is preparing for the  Olympics and the Rugby World Cup during the next four years and the government  has an explicit target to increase international visitors.”

IDF III is AMP Capital’s third infrastructure debt fund in five years and comes  less than a year after AMP Capital closed its hugely successful IDF II. IDF II raised US$1.1 billion and attracted US$250  million of additional co-investment pledges.

IDF  III will be targeted towards institutional investors seeking yield; in  particular, pension plans and insurance companies.  The fund will invest in key sectors such as  utilities, energy and transport in OECD countries.

AMP Capital Global Head of Infrastructure Debt Andrew Jones said: “IDF III looks to capitalise on the success of both IDF I and IDF II and the target size, which  is double that of IDF II, reflects the strength of the infrastructure debt  asset class as well as the investment pipeline created by our team.  For IDF III, we will continue to focus on  finding compelling mezzanine opportunities in infrastructure businesses in  developed countries.

“We are excited by the interest in IDF III from both existing and prospective  investors in our infrastructure debt strategies. Investors have told us they are looking for  investments with high yield and stable returns, both characteristics of  infrastructure debt and what our IDF I and II funds have delivered to their  investors.”

IDF I is fully invested while IDF II, which has a four-year investment period, has  already secured 11 investments spread across Europe, the Americas and Australia.

AMP Capital’s global infrastructure debt team has ten investment professionals  located in London, New York and Sydney. The investment team has successfully invested more than US$2.75 billion in 53 infrastructure debt assets since 2001.