The case for district heating

Date: 02/03/2018

Infrastructure tends to be seen as a stable and predictable asset class, but that’s not to say it doesn’t evolve. As technology developments and societal concerns emerge, such as the current drive to reduce emissions, infrastructure adapts. The changes under way in the market currently are creating investment opportunities.

By Emma Haight-Cheng, AMP Capital’s European head of infrastructure debt

Looking at the infrastructure market broadly, McKinsey has forecast that $57 trillion of global infrastructure investment is needed by 2030, while Preqin reported that 88 per cent of institutional investors expected to commit the same amount or more to infrastructure in 2017. The demand for infrastructure from society – including road, rail, water, power generation and distribution – is set to continue to expand significantly. In addition to these traditional infrastructure assets, new technologies are being adapted and rolled out to meet new demand – such as fibre optics and district heating.

The opportunities in the infrastructure lending space are being eagerly embraced by institutional investors, as we saw over the course of 2017, with a number of successful fundraisings achieved in the infrastructure debt sector. That included our own AMP Capital Infrastructure Debt Fund III, which surpassed its fundraising target, securing $2.5 billion for the fund and an additional $1.6 billion in co-investment and partner commitments. In deploying this capital, we are focussing on creating a well-diversified, robust portfolio of junior and mezzanine loans in the core infrastructure space, keeping a keen eye out for attractive emerging sectors that meet our stringent definition of infrastructure.

District heating is one such sector; we have recently made two investments in the sector and anticipate increasing our exposure across Europe.

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