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Business 2,573 views Feb 16, 2018
5 Biggest myths about infrastructure debt

Institutional investors have always preferred reliable cash flow in long-term investment and returns from an investment that can hedge inflation.  The low yields from Government bonds have never attracted institutional investors. The opportunity that came their way after 2008, presented the ideal stage for investment that meets their goals. Thus began a new era in infrastructure investment that has mopped up money at a phenomenal rate from institutional investors with huge upswing predicted in the forthcoming years.

Infrastructure debt funds

The investments are routed through infrastructure debt funds that expose investors to a wide investment spectrum by allowing access to multiple companies. Never before investors had got such opportunities of direct investment as they had to be content with equity investments in infrastructure. Loans that are originated privately are now being used for infrastructure projects and this has opened up new opportunities for investment. Yet there are some misconceptions among investors about investments in infrastructure that need to be cleared

Is it a new asset class?

Investor interest in infrastructure was always there but the scope of investment was much restricted as private investors were allowed to invest by using the route of equity investment only. All direct investments were primarily made by banks, except for Western Europe, where their private investment in infrastructure was allowed. Therefore, it is not right to think that infrastructure is a new asset class for investors.

The returns could be impaired by upward moving interest rates

It is almost eight years now that the emerging investment trend in infrastructure has appeared quite attractive when low-interest rates have prevailed for long.  The reason is that it is better than Government bonds and does not have the risks of the volatility of corporate bonds.  Even if the low-interest regime is upturned, then also infrastructure investment would remain attractive as it has the ability to cover for inflation because the loans originated from the investments have floating rates.

Investments are just too long

There is no denying that infrastructure investment, especially those made in Greenfield projects might have a lock-in period of three decades, as per standard norms. But now that infrastructure investment funds offer much more options of investments including Brownfield projects which already exist and needs expansion or improvement.  Since these are already running units generating regular revenues, the turnaround time for investment will be much low and there will be no risks of delays and cost overruns.

Higher yield targets are always rewarded

Higher yields are not free from risks and it is not right to expect rewards always. There is a diverse range of asset class for investment and research-backed selection might give some certainty about higher returns. But investing in assets that are linked to core economic infrastructure, there is some kind of underlying assurance that can be expected.

Investment opportunities are limited

There is no dearth of opportunities of investment as figures available show a huge gap between money required and money that is available.  Every year the estimated shortfall of $500 billion is there for investors to lap up with glee.