U.S. may be next hot spot for infrastructure debt investments

As asset management firms like BlackRock Inc and Allianz Global Investors introduce global infrastructure debt investments in Europe, they are eyeing other markets.

And some say that the U.S. may be a logical next step.

On Monday New York-based BlackRock announced it launched a European infrastructure debt division that will lend to companies in sectors such as transportation and regulated utilities.

In Europe, high-yielding infrastructure loans have been traditionally owned by banks. However, those banks are retreating from this area due to the regulatory environment. At the same time, institutional clients, such as pensions and insurance companies, are searching for higher yields. That is why BlackRock sees an opportunity, said Chris Wrenn, the new co-head of European infrastructure debt at BlackRock.

In general, BlackRock anticipates the yield on infrastructure debt to outperform U.S. Treasuries by around 2.50 to 3 percentage points.

"Investors in this low interest-rate environment are looking for safe, stable assets that can produce good long-term returns," Wrenn said.

That demand is not isolated to Europe. Institutional investors in the U.S. have also expressed interest in these projects through private placements, said Philippe Benaroya, who heads the new group with Wrenn, after working at BlackStone/GSO.

As there are more infrastructure deals resulting from public/private partnerships, the U.S. may become an attractive market for asset managers, said Deborah Zurkow, managing director head of infrastructure debt in the London office of Allianz Global Investors.

"It is certainly one of several geographies we will look at," Zurkow said.

BlackRock will take a closer look at the U.S. market in the first quarter of next year, but for now it is focused on getting its European business up and running, Benaroya said.

BlackRock's new team, which also includes Gilles Lengaigne, who was also hired from BlackStone, is eyeing transportation and social infrastructure projects in northern and Western Europe.

"The focus here is on senior debt of investment grade quality," Benaroya said.

The firm will initially focus on European clients who want customized managed account offerings. Clients outside of Europe who are interested may also invest, Benaroya said.

It makes sense that asset managers are looking to expand their presence in infrastructure debt, said Tad Rivelle, Chief Investment Officer for fixed income at TCW, a Los Angeles based asset manager with $135 billion in assets under management.

With most fixed income securities, yields "are starting to hit a wall," Rivelle said speaking at the Reuters 2013 Investment Outlook Summit on Tuesday in New York.

"What they are seeing is perhaps what everyone else is seeing in that many of the fixed-income markets are reaching saturation levels in terms of the yield level," Rivelle told Reuters. "What's happening, of course, is that the conditions in the capital markets and the Fed's policies are driving the capital into a global search for yield."

TCW has no plans currently to invest in global infrastructure debt, Rivelle said.

(Reporting By Jessica Toonkel; Editing by M.D. Golan)