LONDON: Infrastructure debt: entry through primary or secondary markets? New paper from J.P. Morgan Asset Management weighs up each approach

Mar 06, 2013

London, 6 March 2013: Recent months have seen an increase in interest in infrastructure debt, with the launch of initiatives including the Pensions Infrastructure Platform (PIP) in the UK, and several institutions hiring or building infrastructure debt teams.

But there are two distinct approaches to investing in infrastructure debt – through the primary market, where investors lend funds for infrastructure building projects (this is the focus of the PIP), or through the secondary market, where existing loans are bought from the originators (often banks seeking to meet the capital requirements of new regulation such as Basel II/III).

A new four-page Investment Insights paper, Entry through primary or secondary markets?, from the Infrastructure Debt Group at J.P. Morgan Asset Management weighs up the costs and benefits of each approach, looking at five key areas: default probability, asset diversification, speed of capital deployment, interest rate management and execution risk.

The authors, J.P. Morgan Asset Management's Bob Dewing, Sarah Wu and Aaron Groom, argue that in four out of five of these areas, entry via the secondary market is advantageous, as the higher risk inherent in the planning, construction and start-up stages of projects is avoided, and capital can be deployed quickly across a broader range of assets.

Bob Dewing, Portfolio Manager in the Infrastructure Debt Group at J.P. Morgan Asset Management, said: "If you are an investor such as a pension fund, with long-term liabilities, it is easy to see the attractions of a sector such as infrastructure debt, where you have a visible return profile over 25 or 30 years to help match your liabilities.

"There are currently significant opportunities for secondary market investors as banks seek to restructure their balance sheets in line with regulatory requirements. Investing via the secondary market also means capital can be put to work more quickly in assets that are already operating. Greater diversification can also be achieved in the secondary market, as primary investors may find infrastructure is frequently built in cohorts as part of a programme to improve schools or roads, for instance," Dewing added.

The authors also point out that secondary markets are an effective and immediate entry point for building a diversified portfolio of senior loans, while the primary market develops, and increasingly becomes an investment strategy in its own right.

Copies of the Investment Insights paper are available on request.

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For further information please contact:
J.P. Morgan Asset Management
Sarah Godfrey
Telephone: +44 (0) 20 7742 5950

Lansons Communications
Lucy Banks
Telephone: 020 7294 3689

Notes to Editors

About J.P. Morgan Asset Management – Global Real Assets

J.P. Morgan Asset Management – Global Real Assets has approximately $64.5 billion in assets under management and more than 400 professionals in the U.S., Europe and Asia, as of September 30, 2012. With a 40-plus-year history of successful investing, J.P. Morgan Asset Management – Global Real Assets' broad capabilities provide many of the world's most sophisticated investors with a global platform of real estate, infrastructure, maritime/transport and energy strategies driven by local investment talent with disciplined investment processes consistently implemented across asset types and regions.

About J.P. Morgan Asset Management

J.P. Morgan Asset Management is part of JPMorgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US$1.4 trillion in assets under management (the Asset Management client funds of JPMorgan Chase & Co. as at 31 December 2012) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

J.P. Morgan Asset Management is a trading name of J.P. Morgan Asset Management Marketing Limited, which has issued this material in the United Kingdom and which is authorised and regulated by the Financial Services Authority. Registered in England No. 288553. Registered office: 25 Bank Street, Canary Wharf, London E14 5JP.


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