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The Actuary The magazine of the Institute & Faculty of Actuaries

Infrastructure loans – investment opportunity?

Institutional investors interested in buying in to the huge loans made by banks to infrastructure projects, can get access to default and recovery ratings being provided by Standard & Poor’s (S&P). According to S&P’s Michael Wilkins, this move helps banks to free up their loan books to invest in even more projects. For non-bank investors, it’s a burgeoning asset class, he adds.

‘We’re seeing an increased appetite among institutional investors to go into bank loans, both leveraged loans, and also large infrastructural loans as well as traditional corporate loans. And the reason for that is because there’s a huge volume in the market and also the yields that loans provide are much more attractive for institutional investors than traditional capital market instruments’, Wilkins said. ‘So we’re finding that it is more secondary market activity in the loan market. Institutional funds are coming in and these loans have then been bought in the secondary market and packaged up in CDOs. Or they’re traded. And it’s much more active now than it ever used to be. In fact, I believe around 10% to 15% of syndicated bank loans now are bought by institutional investors like pension funds.’