Schroders has launched of its first UK-dedicated infrastructure debt fund, with a focus on UK pension funds and insurance companies.

The Schroder UK Infrastructure Debt fund will target junior loans in the transport, energy, environmental, social infrastructure and telecoms sectors in the UK, focusing on higher yielding opportunities in the market.

Schroders’ Infrastructure team, led by Charles Dupont, Head of Infrastructure Finance, will manage the fund.

The division, launched in September 2015, already runs three infrastructure debt funds and two segregated accounts dedicated to investment opportunities in Europe. It has raised and deployed €1.4 billion in capital since its launch.

This new fund has targeted raising £500 million of capital and a return of Libor +4-5%. The fund has a 10-year maturity inclusive of the investment period.

According to Schroders,  infrastructure debt is an increasingly attractive asset class for institutional investors due to its defensive nature. Junior loans in infrastructure also offer attractive relative value compared to high yield bonds and leveraged loans. The UK is already one of the largest and most diversified infrastructure markets in Europe, boasting a healthy investment opportunity set, with more than £100 billion of investment required over the next five years. Direct lending in the infrastructure space has emerged as an attractive asset class due to the tightening of regulations and liquidity requirements for banks, limiting what has previously been the traditional source for infrastructure funding.

Charles Dupont, Head of Infrastructure Finance, Schroders, said:

“The UK is the most significant infrastructure market in Europe and boasts a strong pipeline of infrastructure debt opportunities.

“Crucially, institutional investors in need of yield will benefit from diversifying into this asset class, whose secure income streams have often proved to be resilient to economic and financial cycles.”