BNY Mellon Investment Management (IM) has launched the BNY Mellon US Municipal Infrastructure Debt fund for intermediary and institutional investors in Europe.
The fund seeks to offer favourable yield whilst holding an investment grade credit risk rating. It is one of the first funds of its kind available in a Ucits structure and with its favourable treatment under the 2009 EU Solvency II Directive could be relevant to EU insurance companies.
The new vehicle, a sub-fund of BNY Mellon Global Funds — an Irish domiciled Ucits umbrella fund — is actively managed. It aims to capture excess yield through investing predominantly in taxable and US tax-exempt municipal bonds issued to finance infrastructure sectors and projects in the US.
The fund will be sub-advised by Standish Mellon Asset Management Company, a BNY Mellon IM institutional fixed income manager and the 5th largest manager of US municipal debt strategies in the world, with over $27bn of US municipal assets under management.
The fund is managed by an investment team headed up by Christine Todd, president and managing director of US Municipal Debt and Insurance Strategies at Standish.
The US municipal bond market is one of the oldest bond markets in the world with approximately $3.8trn of outstanding issuance. The market supplies 80% of the capital for US infrastructure development and maintenance, an area expected to grow significantly under President Trump’s administration. There is an estimated minimum $4.6trn of public spending on US infrastructure required by 2025.
“There is currently a significant opportunity in US municipal debt, especially at a time when US infrastructure is expecting to receive a boost under president Trump’s administration,” Todd said.
“Investors are increasingly recognising the attractiveness of US municipal infrastructure debt and we are excited to bring this strong proposition to them,” said Matt Oomen, head of International Distribution at BNY Mellon IM.
“US municipal infrastructure bonds have historically offered attractive yields, even at times of heightened volatility, while holding higher credit ratings and exhibiting lower default rates than the US investment grade corporate bonds. We believe this asset class represents an attractive risk-return profile for investors and can also benefit from a very favourable Solvency II profile,” Oomen added.
The fund is registered for distribution in the UK, Germany, France, Italy, Spain, the Netherlands, Austria, Belgium, Denmark, Finland, Norway and Sweden. It will also be registered in Switzerland.