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Infrastructure debt tipped as investment opportunity
19 July 2013
EDHEC-Risk Institute paper examines construction risk for institutional investors
Institutional investors should embrace construction risk in infrastructure debt portfolios, research by EDHEC-Risk Institute recommends.
The paper, Who is afraid of Construction Risk, examines the role of construction risk in institutional investors' portfolios and the increasingly topical question of whether they should invest significantly in new infrastructure projects, as many governments have asked.
The paper argues that investors should embrace construction risk and invest in large portfolios of infrastructure debt, as a way to both manage their liabilities and to enhance yield.
Research director and co-author of the report, Frédéric Blanc-Brude, said institutional investors should consider investing in infrastructure “not only because construction risk is not as high in private infrastructure investment as investors often imagine, but especially because it should be seen as a welcome diversifier of credit risk in infrastructure debt portfolios.”
However, the paper also argued that the public sector should make large steps to improve the legal and contractual environment around such investments, with a commitment to improving the quality and standardising contractual frameworks.
It also called for stability around the regulatory framework, as well as governments to commit to a “transparent and significant” pipeline of future projects with new debt issuance, which it said would be vitally important to to allow investors to maintain infrastructure debt portfolios.