BlackRock: why Europe needs project debt intermediaries
The recent flurry of European debt project funds has sparked debate over whether institutional investors will bypass intermediaries and follow the US model, by hiring in-house teams to manage their portfolios directly.
But the co-head of European infrastructure debt with BlackRock – which has announced plans to launch a London-based debt infrastructure unit – has warned against underestimating the value of external managers when investing in the asset class.
Recent reports reveal that 196 private debt funds are looking to raise $124 billion to invest in infrastructure globally. Insurers and pension funds, however, are also building up their internal capabilities.
“Some European institutional investors will no doubt look to hire teams and make investments themselves,” said Chris Wrenn, co-head of European infrastructure debt with BlackRock. “But in the main, we think most will look to invest through an intermediary as a more efficient way to do it.”
Bernhard Gemmel, a Frankfurt-based partner at Salans, sees banks’ managing directors and senior hires with sponsors and construction companies will move to debt fund managers or even direct to institutional investors, such as insurance company funds.
But Wrenn noted the degree of due diligence and upfront work required by the asset class. “So it’s efficient to use an intermediary for the origination, due diligence, and monitoring. And that’s really where we see BlackRock having a significant role to play.”
The European preference for outsourcing management of this debt is in stark contrast to the US in-house model. As an asset class, explained Phillip Fletcher, head of Milbank Tweed Hadley & McCloy’s project finance group, it’s covenant intensive and structure intensive. “You need to manage them, and I think the American model has worked pretty well,” he said.
Wrenn stressed the differences between the European and US markets, though.