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July 08, 2020  

New Firm Touting Infrastructure-Debt Tokens

A New York startup is developing an auction and trading service that promises to make infrastructure loans available to a broader set of investors, including hedge fund operators.

The firm, Pontoro, aims to offer an initial loan pool in the vicinity of $300 million to $500 million during the first half of 2021. Its goal is to complete at least $20 billion of such trades within five years.

Infrastructure loans, which often total hundreds of millions of dollars and at times can surpass $1 billion, typically are syndicated by banks among narrow groups of large buyers including pension systems and sovereign wealth funds. Pontoro proposes to break them into smaller amounts that would allow participation by small and mid-size investors while preserving the banks’ roles as originators.

Here’s how: The firm would offer blockchain-based tokens that would represent exposures to pools of multiple loans with a minimum investment of perhaps $1 million. Some of the offerings would be broadly diversified. Others would be organized by underlying asset type, for example loans that finance solar- or wind-power projects.

Pontoro then would give the holders of the tokens the option to bid on specific loans in those pools via Dutch auctions, typically within a few weeks. The result would be the creation of an additional layer of potentially smaller tokens that would facilitate the creation of custom portfolios.

Pontoro believes an eventual outcome would be the creation of an active secondary market for infrastructure loans, which aren’t widely traded today. That process, likely taking a few years, would depend in large part on loan transparency.

Indeed, Pontoro is touting its tokenization plan as giving auction participants a clearer view into each loan while reducing settlement risk and transaction costs. The firm currently has access to more than $500 million of performing loans written against existing infrastructure assets. Eventually, it plans to expand into other illiquid asset types including private equity fund shares and private-company investments.

“There’s a large opportunity to unlock private markets to a broader spectrum of institutional and accredited investors,” Pontoro chief executive Antonio Vitti said. “That’s what we hope to do, starting with infrastructure loans and, over time, other high quality private equity assets and other sectors.”

Along with hedge fund firms, Pontoro is shopping the idea to family offices, smaller pension plans and wealth managers. Currently, investors in those categories that want exposure to infrastructure debt in most cases must opt for funds with long-term lockups and large minimum contributions.

Infrastructure debt rarely defaults. And because the underlying payment streams are linked to assets including power plants, hospitals, telecommunication facilities, water and waste facilities, railways, roads and airports, there is little correlation to broader markets.

But infrastructure loans typically pay low interest rates, often about 300 bp over Libor. To that end, hedge fund operators taking part in Pontoro’s program likely would seek to juice their returns through the use of leverage.

The banks that would originate the loans, meanwhile, are showing interest in the service both as a means of expanding investor access and reducing their own exposures for regulatory risk-management purposes.

Part of Pontoro’s pitch is that it sees the need for $94 trillion of infrastructure financing globally by 2040, with government entities and banks only able to supply about $80 trillion of that amount. Banks, for instance, have been pulling back.

As it develops its business, Pontoro is negotiating to raise $3 million from venture capital investors. That capital would represent the firm’s first injection from outside backers while assigning a $15 million value to the business. It would use the money for technology, legal and operational matters.

Vitti leads Pontoro with chief investment officer Robert Dewing. Vitti previously was chief executive of Merchant Atlas, a sales-automation business he co-founded in 2009. His earlier employers include Franklin Templeton Investments, BlackRock and Lehman Brothers. Dewing’s background includes serving as a portfolio manager for a $1.7 billion infrastructure-debt fund at J.P. Morgan, where he worked from 2011 to 2016. He also has spent time at Global Geothermal and Citigroup.

On board as asset-operating partners are former GE Energy Financial executive Paul Naumann and Martin Rees, ex-chief financial officer of InterGen. Pontoro additionally is working with several advisors: Grasshopper Capital partner Nisa Amoils; former SEC commissioner Paul Atkins, via his Patomak Global; artificial-intelligence specialist Steven Gustafson; LMRKTS executive Hyung Kim; and Annemarie Tierney, who covers blockchain-technology regulations via her Liquid Advisors.