By Patrick Corby
Blackrock, the multinational investment manager, is setting itself up to move into the global infrastructure markets. Starting with London.
The company is the largest mover of money with a colossal $3.67tn under it’s management. In 2009 when it acquired Barclays Global investors Blackrock cemented its place as the mover of the money.
Attracting investment in infrastructure has became more difficult as banks have started to withdraw from the market amidst growing debt repayment risk. Investing in infrastructure such as transport, energy and housing is normally funding by banks willing to wait the 4 or 5 years it takes to generate a return long term but that’s a risk. But with infrastructure debt instruments offering 3% more than a UK gilts and banks drying up, hedge fund managers, starting with Blackrock, are now moving in to the new high yielding market.
Andrew Briggs, a partner at Hogan Lovells, the law firm has said “Three or four years ago this would have been funded by the usual banking suspects,” “But with certain banks withdrawing from traditional long-term lending, new sources of finance need to be found.”
The deal here is simple: hedge funds will move into the infrastructure market proving the liquidity that governments desperately want in order to increase projects and bolster the job market. While hedgefunds are seeking less risk within the current economic conditions. By governments guaranteeing the projects hedge funds get certainty and governments get there liquidity.
A senior asset manager at a US institution said: “Infrastructure debt does usually offer a safe return, but it is not a government bond unless a government guarantees it. We would like to see more governments guarantee these projects.”
Governments will now be underwriting projects instead of spending money upfront. In July George Osborne, the UK chancellor, launched the ‘UK guarantee’ scheme, with gave permission for the UK government to secure and underwrite £50bn worth of infrastructure projects if they fell through for private investors.
Some have argued that this is the ‘accountancy approach to policy’, making sure if projects do fall through it wasn’t this government who funded it, it was private investment secured by government. The case for easy credit leading to malinvestments still stands.
Will this give more impetus to malinvestments as hedge funds go to any length to secure high yeilds in a drying up market? Let’s see how Blackrock’s strategy pans out. With 1 in 3 companies making a loss each year in the UK lending isn’t exactly the boalster to the economy we would wish.