The first in a new series of infrastructure fund case studies taking an in-depth look at fund structure, fundraising and investment. The series begins with Deka Infrastruktur Kredit, a German based opend-ended senior debt fund launched in 2009 to provide diversification for institutonal invetsors.

Quick facts

Fund manager: Deka Bank 

Fund size (to date): €289 million (across two debt fund vehicles)

Launched: March 2009

Fund structure: open ended senior debt fund

Investment mandate: The fund will provide loans to infrastructure projects in Europe and North America in the transport, renewables, gas and electricity sectors.

Background

“Deka Infrastruktur Kredit” is an open-ended senior debt fund, the first of its kind in Germany. The fund was launched in March 2009 with the aim of offering a new investment opportunity for more diversified portfolios of institutional investors.

Burkhard Egbers, head of  Public Infrastructure Finance said: “The fund provides senior debt to infrastructure projects which fulfil its investment mandate. The fund bundles together infrastructure credits from Deka Bank’s credit book, and Deka Bank remains invested in all the assets as a partner to the fund.”

The fund is regulated by the Germany Regulatory Service (BAFIN) and is thus a perpetual structured fund.

Fundraising

The fund began fundraising shortly after launch and has to date raised €289 million. The open-ended structure means that fundraising is on-going and new investors are able to join the fund on a monthly basis.

The main fund carries a floating price of a margin over three-month EURIBOR. Deka has also launched an individual infrastructure debt product for a single investor with a fixed coupon. The second vehicle has a fixed coupon in order to allow the investor to swap the floating rating rate.

Fund manager, Jeanette Leischke, head of Loan Investments, said: “As the fund was launched in 2009 we started in the middle of the market turbulences and the banking crisis. Investors started to draw their investment from funds albeit the fund did raise almost €200 million in 2010/2011. Due to the fact that the fund is regulated and Deka has to provide a price on a monthly basis 2009 was used to build up a track record and to grow our experience for debt fund management, relying on and reflecting an over 30 years of experience in infrastructure debt investment.”

Investors

“Deka Infrastruktur Kredit” is designed exclusively for institutional investors which includes Deka shareholders and other institutional investors such as pension funds and insurance companies. A large percentage of the investment in the fund comes from German savings banks.  To date the fund has a total of seven institutional investors from Germany and Luxembourg.

Returns

The 12 month net return after all costs of the fund (BVI calculation) is currently 3.32 per cent, p.a. for the floating fund and 3.65 per cent p.a. for the fixed coupon fund; with two distributions per year.

Investment mandate

The debt fund currently invests up to 95 per cent in Cash Flow based senior secured infrastructure assets. The remaining five per cent are kept as a liquidity cushion and are invested in liquid assets. The fund will provide loans to infrastructure projects in Europe and North America in the following sectors:

• Roads
• Airports
• Rail
• PPP
• Wind and PV
• Gas
• Water
• Electricity
• Grids and Distribution
• Social Infrastructure

The fund seeks to invest in state backed projects that provide economically essential services and a stable return for investors.

Egbers said: “A preliminary decision was the idea to provide “real money for real assets”. The average default rate of an infrastructure project (PPP / Transport Infrastructure) is two per cent and three per cent respectively. In addition to this, the default recovery rate is above 90 per cent for the same asset class."

The average loan size the fund has issued has been €10-€20 million and the average tenor on the loans ranges from two years to eight years.

The fund has made 14 investments to date across the two vehicles. The following chart displays where those investments have been made.