This week’s announcement by AXA that it will set up an infrastructure debt fund with €10 billion of its own funds is a rare occasion when the term ‘game-changer’ is not being abused.
The French insurance giant’s fund, focusing on Europe, will dwarf other infrastructure debt funds that are planned, fundraising or already closed in the European market. In fact it probably has few competitors by size anywhere. This kind of really big commitment from a pension fund/insurer is important if all our infrastructure needs are to find financing in the next few decades.
The suggested €500 million loans it will dole out could single-handedly finance the debt portion of many small to mid-sized public infrastructure projects, and on big ones they could complement other institutional investors. That’s probably what they want to do on any given deal: lend alongside other insurers or pension funds, rather than banks, whose ticket sizes are not so big and whose interests aren’t aligned with an insurer or pension fund. Few co-lenders, big loans, not too many people round the table to argue with.
And what’s more, because it’s AXA’s own money (not least insurance premiums), this fund is really very likely to happen – unlike some that never get off the ground due to lack of investor interest. In the infrastructure debt space, Barclays’ is an obvious example: the planned £500 million fund was announced in 2011 but there’s been no news of how much, if anything, has been raised for it.
Plus it won’t be competing with other funds for third party investors’ money. Perhaps the most pressing question is if they will find enough bankable deals to actually invest in.
sources: Wall Street Journal, Infrastructure Journal, Swiss Re
The answer to that last question is probably that it will buy up lots of existing infrastructure loans from banks – many of whom are only too happy to sell them, even at a discount, either because (a) Basel III makes it prohibitively expensive for them to hold the loans, (b) they want to continue lending to infrastructure, picking up arranging and advisory fees on the way, and need to bump the loans off their balance sheet before it gets too big, or (c) both.
The fund will invest in both greenfield (not built yet) and brownfield (already built) infrastructure, AXA says – the precise mix remains to be seen. One caveat on their ambition is the unusually long time AXA has given itself to commit its money: five years instead of one or two years when a fund is raising other people’s money.