2013 in Review: Fund Type of the Year – Infrastructure
December 20, 2013
From tweets to luxury hotels, the private equity and venture capital spaces have had plenty of high profile deals in 2013. However, there is one subset of the private equity space that deserves a special mention as the year draws to a close—infrastructure. While airport financings and railroad purchases may not make for sexier headlines than tech IPOs, infrastructure provides the foundation for the global economy and is highly influential in the mind of the public. After all, ask yourself, when is the last time you heard a politician give a major economic speech and not call for increased investment in infrastructure?
Yet, patriotic as infrastructure may be, gone are the days when a country simply owned all of its own roads, power plants and communications lines. Infrastructure funds are increasingly becoming more global, and several of them made that shift in 2013. In this article, PitchBook highlights a few of these funds and look into what their strategies can tell us about how infrastructure funds are evolving.
Pan-African Infrastructure Development Fund II
Looking first at Africa, we have the Pan-African Infrastructure Development Fund II (PAIDF II), managed by South African investor Harith General Partners. PAIDF II is Harith’s second pan-African infrastructure fund and is currently fundraising with a $1 billion to $2 billion target. Harith’s previous vehicle, the Pan-African Infrastructure Development Fund, closed on $630 million in 2009, raising capital from several African institutions, including the African Development Bank. In addition to its expansion into healthcare infrastructure, PAIDF II is particularly interesting because it represents a shift in fundraising strategy and will be raising money from global investors rather than just local African institutions.
Nebras Power Fund
Funded by Qatar Electricity and Water, Qatar Holding and state-backed Qatar Petroleum International, the Nebras Power Fund closed on $1 billion in May this year. This fund stands out for its unique strategic aims. Rather than attempting to boost local infrastructure, as many sovereign-backed infrastructure funds do, the fund is intended to invest abroad in power generation, water desalination and cooling and heating projects. This is part of a broader strategy to help build up foreign energy markets so they can ultimately sustain more natural gas exports from Qatar.
J.P. Morgan Asian Infrastructure and Related Resources Opportunity Fund II
Not one to stand on the sideline, J.P. Morgan Chase’s asset management arm began raising its second Asian infrastructure fund in 2013. PitchBook data show that J.P. Morgan’s first Asian infrastructure fund, which closed in 2010 on $860 million, has already invested 75% of its dry powder. Fund II is targeting a final close between $1 billion and $1.5 billion. Raising this much capital so soon after J.P. Morgan’s previous fund makes sense if predictions about Asian infrastructure needs are correct. The Asian Development Bank estimates are that Asia will require $8 trillion worth of infrastructure investment by 2020.
Macquarie Russia & CIS Infrastructure Fund
A traditional infrastructure powerhouse, Macquarie Group also deserves recognition in 2013 for firmly committing to unproven international horizons when it assumed full control of the previously jointly managed Macquarie Russia & CIS Infrastructure Fund. Originally closed in 2009, this $630 million fund targets investments in Russia, Kazakhstan and Ukraine and has the support of Russia’s state development bank.
Alinda Global Core Infrastructure Fund
U.S.-based Alinda Infrastructure has a strong track record of investing in North American and Europe-focused infrastructure, having raised $3 billion and $4 billion funds in 2007 and 2010, respectively. While the performance for its 2010 fund may still be difficult to judge given the J-curve effect, PitchBook data show that its 2007 fund boasts a top-quartile 25.3% IRR* as it begins to distribute money back to investors. Given these early indications of strong performance, the Alinda Global Core Infrastructure Fund, currently in the market targeting $3 billion, certainly deserves a place on your holiday wish list as the firm begins to look beyond its North American and European roots.
Still not sold on infrastructure? If providing essential services and remaking the foundation of the global economy are not enough for you, consider the advice of one industry insider who notes that the life of an infrastructure investor can provide better hours at PE level pay—that alone is a combination worthy of headlines.
*All returns have a 2-3 quarter lag due to reporting processes – performance through 1Q 2013 or 2Q 2013.