Apr 05 2017Add to Favorites
Ruth Liew, Bloomberg
Record low yields and negative interest rates are pushing investors from Japan to China into funding infrastructure projects across the globe to bolster ailing income, according to Australia’s biggest listed wealth manager AMP Ltd.
Asian pension funds and insurers are ramping up investments in infrastructure debt around the world including mezzanine offerings as they seek to combat waning returns from traditional fixed income assets, said Kerry Ching, managing director for Asia of the company’s investment arm, AMP Capital Investors. The number of Asian investors in AMP’s infrastructure debt strategies has more than tripled since 2012.
“Because insurance and pension funds have a large chunk of their portfolio in marketable securities and fixed interest which has been extremely volatile for the last couple of years, they’re looking for stability,” she said in an interview in Hong Kong. “Global infrastructure debt was a very successful strategy and there’s stability in the capital value.”
Infrastructure spending plans are drawing greater scrutiny worldwide, including a $1 trillion splurge pledged by President Donald Trump to improve roads, airports and bridges across the U.S. Investors pumped a record $413 billion into infrastructure investments globally last year, according to data provider Preqin. Managers such as Global Infrastructure Partners and Brookfield Asset Management raised unprecedented amounts of funding for their infrastructure strategies in 2016.
AMP has invested more than $3 billion in 56 infrastructure debt assets and raised about $1 billion from investors so far for its third fund in the asset class. The company is “on track” to meet the $2 billion fundraising targets for its latest infrastructure debt strategy, an AMP spokeswoman said in a March 31 email. Such debt funds at the firm target a 10 percent yield on investments, according to the email.
The A$165 billion ($125 billion) manager is seeing increasing interest from Taiwanese and South Korean investors, Ching said. Direct and listed real estate investments including commercial properties in Australia are also increasingly popular among Asian investors thirsty for yield, she said.
“Australian economic conditions have held up relatively well compared with Europe,” she said. “Australian property offers slightly better yield than some of our properties in Hong Kong or Singapore.”
As fund flows increase from Asia, AMP Capital is looking to add to its distribution team in the region, Ching said. “In Hong Kong, we will be hiring a few people this year.”
The current investment landscape in Australia is driven by a range of factors, not least the 2019 federal election, and the view is that the result of the Wentworth by-election, a seat that has historically been monopolised by the Liberal Party, will be the foreshadowing of the federal outcome. The Australian equities market is experiencing volatility, with a 200 point drop last week in the S&P ASX index, the largest drop this year and potentially the result of sentiment surrounding geopolitical headwinds with the latest developments relating to the trade war between the USA and China. Global bond rates remain low, and despite incremental increases, interest rates are too low to be attractive from an investment perspective.
In an ongoing low-interest rate environment on savings and with banks withdrawing from property and construction financing, investment groups like Centennial Property Group are seeing value in providing first mortgage funding for property development, recently settling a $48m loan for a mixed-use retail/residential development in Sans Souci, NSW
With the combined influences of a cooling residential property market and heightened bank scrutiny on all aspects of real estate lending, traditional debt sources are, in many cases, closed to developers and commercial real estate investors, particularly where circumstances require a specific funding solution.
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