Rising inflation and interest rates have become the biggest hurdle for European infrastructure lenders, while spread compression is also a growing concern, new research has revealed.

Nearly one in three (31 per cent) infrastructure and private credit fund managers cited concerns about the impact of inflation and high interest rates on hurdle rates, according to a survey by capital markets service provider Ocorian.

While 25 per cent of respondents identified spread compression as the sector’s biggest challenge, ahead of other concerns including limited deal flow, covenant erosion and changes to government policy.

The research surveyed fund managers across the UK, Germany, Switzerland, France, Italy and Sweden.

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“Market volatility is impacting infrastructure lending pricing both because benchmark yields have risen and because spreads for riskier offerings have widened,” said Cato Holmsen, global head of Ocorian Capital Markets and chief executive at Nordic Trustee. “If inflation remains embedded and growth slows, that balance is likely to shift even more decisively toward lenders over the coming months.”

When asked to rank the biggest risks facing infrastructure projects across Europe, respondents pointed to regulatory and political risks, alongside market risks such as lending demand and pricing volatility.

“At the same time risk focus has shifted outward. Regulatory, political, and market risks now rank above traditional project risks,” added Holmsen.

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Respondents said they are currently prioritising legal protections, insurance and hedging, as well as government guarantees or backing, in response to heightened political risks.

Overall, the survey found that lenders and investors currently favour lower-risk brownfield sites, which offer greater stability amid heightened uncertainty than greenfield projects.

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