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Infrastructure assets – typically with high barriers to entry, long economic lives, high capital values, and steady operating margins - can deliver the kind of predictable, often inflation-linked cashflows that support greater leverage capacity and attractive private debt returns.
As investors look to broaden and diversify their exposure to private debt, this paper explores why infrastructure debt can serve as an important diversifier for portfolios.
Key points covered in this paper include:
- Infrastructure assets offer stable cashflows and high collateral value, enabling greater leverage and attractive yields for debtholders.
- Due to regulatory constraints on banks, institutional investors face less competition for junior infrastructure debt opportunities.
- QIC’s long-term experience and scenario analysis suggest junior infrastructure debt offers compelling diversification benefits and competitive Sharpe ratios relative to listed equities.
- Infrastructure debt can support ESG objectives, particularly through investments in renewable energy and sustainable infrastructure.
- The asset class aligns well with Australian regulatory frameworks, including the Retirement Income Covenant and Your Future, Your Super, supporting stable income strategies for retirees.