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Why are the biggest investment companies looking at infrastructure debt as the next big thing? - 2 views

Investment Company

started by sequoia-uk on 21 Sep 18
  • sequoia-uk
    Demographic changes have affected the invest scenario across the world as it witnesses huge influx of investments in infrastructure. The importance of infrastructure in a country's economy is well known as it is looked upon as the backbone of economy. This is true for developed countries as well as emerging economies where there is considerable thrust on investment in infrastructure. Huge investments are necessary to support the infrastructure projects whether it is Greenfield projects that start from scratch or Brownfield projects that involve expansion and augmentation of existing projects. Post recession in 2008, investment in infrastructure has attracted institutional investors in a much bigger way as banks abstained from investing in infrastructure due to restrictions imposed on it. Since then, the markets for infrastructure debt funds have been open to investors across the world.
    Direct investments
    The focus has always been on economic growth which is driven by infrastructural growth. For bringing about qualitative change in the lives of people, economic growth and infrastructural investment go hand in hand. The interest of institutional investors for investing in infrastructure had always been there but prior to the recession there were no means of investing directly but to use the equity investment route. Now with opening up of opportunities of direct investment through infrastructural debt funds, there is huge encouragement among investors to participate in infrastructural growth in a direct manner.

    More opportunities
    Investors have always been interested in long term cash flow with reliability for which the infrastructure debt funds are ideal vehicles of investment as compared to low yielding government bonds. The infrastructure debt funds or IDFs provide the opportunity of accessing multiple and diverse range of companies that offer bonds which can protect against inflation. The long term assurance of steady income together with the power of hedging inflation provides a double edge sword to investors that neither corporate bonds nor government bonds can offer. Even if interest rates move up, investors have no reasons to worry.
    How it has happened
    The trend of investing in infrastructure that emerged almost eight years ago has now gained considerable momentum. The shift in investor interest to infrastructure in a more open way through direct investments is a glaring example how a crisis situation can also present new opportunities. With banks becoming reclusive towards infrastructure investment and interest rates reaching the nadir, the huge gap between demand and supply of money for infrastructure projects has been a blessing for institutional investors who are now having a field day. The mood is upbeat and more money is being pumped into infrastructural projects like never before.

    It should now be clear what is making the biggest investment companies to throw their hats in the ring. Making money grow is the basics about investments but what makes the difference is the power of hedging inflation. And on this count infrastructure investments are the best bets and as per trend and projections, it is a phenomenon that is likely to accelerate growth for the next many years.

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