French asset manager Ostrum launching US$500 million Asian infrastructure debt fund

A French asset management company is targeting infrastructure projects in Asia-Pacific, including the Belt and Road Initiative, where the funding needs are estimated at US$22.6 trillion by 2030.

Ostrum Asset Management, an affiliate of Natixis Investment Managers with €257.6 billion (US$290.3 billion) in assets under management, said that it was planning to raise up to US$500 million this year through a dedicated Asian infrastructure debt fund.

The company said it plans to invest the funds through its recently set up Hong Kong subsidiary and has been building a team to oversee its investments and Asia expansion.

Charles Regan, managing director of Ostrum AM Hong Kong, said his team would focus on investment opportunities in infrastructure projects such as electricity, renewable energy, transport, aircraft loans and natural resources.

Regan joined Ostrum this year after leaving investment manager Windward Capital Asia, which he co-founded.

The new fund will target both institutional investors and private banking clients, and other retail investors.

Although infrastructure debt today only represents less than 5 per cent of Ostrum’s €1.2 billion (US$1.34 billion) private debt portfolio, Asia’s fast-growing infrastructure spending needs and those stemming from China’s Belt and Road Initiative, means that opportunities for financing these projects with private debt is significant, Regan said.

The Belt and Road Initiative is an ambitious plan devised by President Xi Jinping to coordinate trillions of dollars of infrastructure investment across the regions of Africa, Europe and Asia historically bound by the ancient Silk Road trading routes.

The initiative, which has today expanded to over 80 countries, has been central to financing and construction of the 2,000 or so projects valued at more than US$1 trillion that have so far been approved.

“There are a lot of development requirements [associated with these belt and road projects]. As the economies and middle class in these markets grow, they will need power, road and ports,” said Regan.

He added the long tenor of these infrastructure projects reaching up to 30 years in many cases would be a better match for investors who need to manage long-term liabilities.

The US$22.6 trillion figure is a baseline infrastructure spending estimate by the Asian Development Bank, which could rise to US$26 trillion if the costs of climate change mitigation are incorporated.

The fund will aim to deliver a weighted average gross return of 6 per cent per annum.

Regan said for Southeast Asia, the region’s average default rates for project finance loans was 9 per cent, which makes the risk profile of Asian infrastructure private debt comparable to those in North America and Europe.

He said this could give more comfort to investors who are looking at an investment grade asset class.