Private credit managers have raised billions last year for infrastructure debt strategies, but for Ares Management there is plenty of room to grow.
Many of the largest alternative asset managers have raised infrastructure debt funds over the last year. Brookfield closed the largest of these at $6bn (£4.7bn). Meanwhile, Blackstone raised $7.1bn for an energy transition private credit fund, with a particular focus on infrastructure investments. At the start of 2023, Ares raised $5bn for its fifth infrastructure debt fund.
In the EU, non-bank lenders provided 44.2 per cent of infrastructure financing according to data from Preqin. And over the next five years, there could be a potential financing opportunity of $1.5tn for private lenders, according to a new whitepaper from Ares.
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It is no secret that there is a growing need for investment in the sector as digitalisation and decarbonisation trends require new and updated infrastructure. With a $5.5tn gap in global infrastructure investment through to 2035, private lenders are expected to become increasingly critical as a source of capital, according to Ares.
And for investors, infrastructure debt can offer compelling returns at a lower risk than corporate debt. A Moody’s study, cited by Ares, found that default rates over a five-year time horizon from 1983 to 2021 for rated corporate infrastructure and project finance were 2.3 per cent, compared with 9.6 per cent for rated non-financial corporates.
“Global investor interest in infrastructure debt continues to rapidly increase, and it is being recognized as a potential core component of private credit portfolios,” the authors of the whitepaper noted. “Investors are learning about the benefits of infrastructure debt, from creating diversity within a portfolio to how the underlying assets can provide stable, reliable and consistent cash flows that result in improved risk-adjusted returns and downside protection.”
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