AMP Capital Investors is marketing a new global infrastructure debt fund to international prospects, says Anthony Fasso, Hong Kong-based CEO of AMP Capital International. He oversees the business outside its home base in Australia.
The firm hopes to make its first close on the fund by the end of the year, with a target of €500 million ($645 million). Its capacity is around €1 billion.
The debt fund is AMP’s first such product for international assets (it has had a domestic Australian debt infrastructure fund for 10 years). Fasso explains that, although it can engage in secured or senior lending, the focus will be on mezzanine capital – that part of the debt capital structure with the highest risk/return profile.
The pull-back by many investment banks post-Lehman Brothers collapse from risk taking and origination creates space for players like AMP Capital, argues Fasso. Moreover, mezzanine debt is enjoying a revival, because the major private-equity players also face constraints, while banks have lost their appetite for senior loans (which they tended to leverage, in order to boost returns).
“Investors are no longer willing to put in 10-15% of equity and lever the rest through senior debt,” says Boe Pahari, the firm’s London-based head of infrastructure for Asia-Pacific. “If you want leverage, you must now pay for it through mezzanine financing.”
Mezz offers equity-like returns in some cases, or it can be structured closer to a secured-type arrangement, depending on the underlying asset and where it stands in its life cycle.
Fasso estimates the new debt fund can achieve an annualised internal rate of return of around 15%. On top of that, it will earn fees for advisory and arranging services.
International clients are a growing part of the firm’s business, with around $12 billion of assets sourced from outside Australia. AMP Capital has around $100 billion of total AUM and invests in four areas: real estate, infrastructure, real-estate investment trusts and a multi-manager platform of both long-only and alternative asset managers.
Fasso explains the firm’s success has been built on business from Australia’s superannuation funds market, but to grow it must now diversify abroad. At the same time, sovereign wealth funds and big Asian and US pension funds are keen on gaining exposure to real assets with long duration.
AMP Capital does infrastructure deals in Asia and Europe. For the next few years, Europe is likely to be more attractive. Fiscally stricken governments in the eurozone are embarking on a multi-year task of privatisation. Because Europe is seen as unattractive, there is competition for assets, and valuations are compelling.
Asia is the long-term growth story for infrastructure, given the huge need for continued spending and building in India and China and the ability of governments to finance these projects.
But the region’s trendiness among investors has pushed up valuations, sometimes prompting governments to delay agreements in order to seek higher prices. Given the region’s immature legal structure and capital markets, the risk/return profile isn’t as attractive as Europe’s, says Pahari.
“Asia is no doubt the main story over the long term, but it needs to go through a maturation process,” he explains. “Governments need to realise they are also competing for global capital.”
AMP Capital, an arm of Australian insurer AMP, has signed an MOU with China Life Insurance (pending Chinese regulatory approvals) to create an investments JV, and is looking to create another such arrangement in India. It has a large Japan business, sub-advising on global Reit and fixed-income strategies.