Beyond corporate credit: Why infrastructure debt could be the missing piece in your clients’ portfolio
Anders Amundson, Director of Origination and Structuring, explains how infrastructure debt strategies are structured and how to use them alongside traditional fixed income, private credit, and equities for durable income, capital preservation, and diversification.
- Private infrastructure debt can offer investors income, diversification, and long-duration exposure supported by essential services and contractual or regulated cash flows.
- The asset class provides funding for critical, long-term assets that underpin modern economies, spanning sectors including power and energy, digital infrastructure, transportation, and social infrastructure.
- Infrastructure debt has historically exhibited low default rates, high recovery rates, and attractive structural protections relative to other corporate credit asset classes.
- The potential benefits include attractive risk-adjusted returns, resilience through economic cycles, and low correlation to other private market asset classes.
- Gross returns of 8-10% unlevered and 10-12% levered may be achievable in a defensive high-yield strategy.
Infrastructure is the bedrock of economic activity. It includes the networks, systems, and facilities that allow societies to function by generating electricity, transmitting data, transporting goods and people, and providing water, healthcare, and education.
Private infrastructure debt is a specialized segment of the private credit market that finances these assets. Private infrastructure debt consists of privately originated loans and credit instruments secured by infrastructure assets or the entities that own and operate them. Unlike publicly traded bonds, these instruments are negotiated directly between borrowers and lenders, allowing for customized terms, structures, and covenant packages tailored to the specific characteristics of the underlying assets.
The debt typically finances assets with long useful lives that provide essential services with limited substitutes. This distinctive asset profile, combined with the illiquid nature of the instruments, creates opportunities for investors able to commit capital for extended periods.
Wealth advisors may want to consider infrastructure debt for their clients as it offers exposure to tangible, essential assets while seeking to deliver stable and attractive income and risk-adjusted returns. To read the full guide to understand how this asset class differs from traditional corporate credit and its role within portfolios, download
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If you have questions on how private market debt can fit into your clients’ investment approach, ask an expert on our team.
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We believe advisors should consider the following when evaluating private infrastructure debt allocations:
- Yield targets and credit quality appropriate to client risk tolerance and return requirements
- Diversification away from other asset classes, including corporate bonds, corporate private credit, and private equity
- Liquidity profile and time horizon alignment with debt maturities
- Sector and thematic exposure to capture secular growth trends
- Geographic and regulatory frameworks that provide appropriate diversification
- Duration and interest rate sensitivity management within overall portfolio construction
- Manager capabilities, including origination networks, structuring expertise, and asset monitoring discipline
Footnotes
Target returns are presented for discussion purposes only and are not projections of results for any investor. The actual results may differ materially from those depicted above based on numerous factors, including market changes. Target returns are based on market observations and reflect yield-to-maturity.
Risk considerations
Past performance is no guarantee of future results and should not be relied upon to make an investment decision. Investing involves risk, including possible loss of principal. Private market investments, unlike publicly traded stocks, involve various risks due to illiquidity, lack of transparency, and higher minimum investment requirements. These risks include liquidity risk, market risk, capital risk, and regulatory risk. Additionally, private market investments often involve higher fees and expenses and may have longer investment horizons. Infrastructure investments are long-dated, illiquid investments that are subject to operational and regulatory risks. Infrastructure companies are subject to risk factors including high interest costs, regulation costs, economic slowdown, and energy conservation policies. Asset allocation and diversification do not ensure a profit or protect against a loss. The risk management techniques discussed seek to mitigate or reduce risk but cannot remove it.
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