Australia's AMP Capital eyes Asia for infrastructure debt plays

SYDNEY (Reuters) - Australia’s AMP Capital is considering debt investment opportunities in infrastructure around Asia, driven by massive investor demand for safe yet high-yielding assets.

FILE PHOTO: The logo of AMP Ltd, Australia's biggest retail wealth manager, adorns their head office located in central Sydney, Australia, May 5, 2017. REUTERS/David Gray/File Photo

Andrew Jones, global head of infrastructure debt at AMP Capital, told the Reuters 2020 Investment Outlook Summit he was “examining the possibility” of offering Asian assets to its investors.

“That’s something that we’re in early stages of thinking about,” Jones said. “We are seeing more and more investment opportunities there so we’re considering whether it might be an appropriate market.”

If AMP Capital does choose that path it would return to the market for a fresh round of fund raising, Jones said, having closed a record $6.2 billion for AMP Capital’s fourth infrastructure debt fund only last month.

Jones said half of that money has already been invested in sectors like renewable energy and digital infrastructure such as telecom and cable networks and data centers in western Europe and northern America - the only two markets the fund invests in.

The fund, which focuses on subordinated mezzanine loans to infrastructure companies, offers a target return of 10%, a sizeable premium in a world where government bond yields in developed economies are closer to zero or even negative.

The investment is also considered less risky than equities although it still involves a degree of danger as investors do not enjoy the first right on assets in case of a default.

Still, Jones needed to work to convince investors to join the fourth round as fears of a global downturn led by a protracted trade war between the United States and China made some investors jittery.

“When we were raising our fourth fund we had a lot of conversations with people who were nervous about making allocations to a credit strategy at a time when people were worried about a recession around the world,” Jones said.

“We spent a lot of time talking to them about the non-cyclical nature of our strategy. Some of that concern has eased a bit now.”

For many investors, such investments form part of their broader infrastructure portfolios. But increasingly, Jones said, investors were creating “dedicated” allocations as demand for high-yielding private credit instruments grows.

That partly explains the surge in demand, which Jones does not yet believe is over-hyped.

“If all this capital that is targeting opportunities in infrastructure was an isolated position...then may be you could call it a frothy market,” he said.

“But because on a relative risk-adjusted basis asset classes around the world look pretty evenly valued I wouldn’t point to any particular one and say that’s an overbought market and should be avoided,” he added.

AMP Capital is the flagship wealth management unit of AMP Ltd AMP.AX.

Reporting by Swati Pandey; editing by Jane Wardell