EMEA: Dalmore fund beats fundraise target by 85%

21 May 2018 - 12:00 am UTC

Dalmore has closed fundraising for its latest fund 85% above its original target, with the vast bulk of capital having come from Asian and UK investors.

The UK-headquartered asset manager held a final close of Dalmore Capital Fund 3 (DCF 3) on Thursday (17 May) with GBP 924.5m in commitments, 12 months after it held a first close of the fund, sources said.

Dalmore launched a GBP 500m fundraising for DCF 3 in January 2017, in a process which has seen it up its hard cap from GBP 750m to GBP 950m due to strong investor demand.

Dalmore Capital declined to comment.

One investor with knowledge of the situation said that the UK manager had in recent weeks signed up a further GBP 263m to the fund, with Korea’s Hanwha Asset Management structuring a GBP 110m investment into the fund and a further GBP 100m coming from the UK’s Marks & Spencer Pension Fund.

The local government pension schemes of Strathclyde and the Scottish Borders invested GBP 50m and GBP 3m respectively.

Figure 1: Dalmore Capital Fund 3 LP Investor Analysis

DCF 3 has been backed by 12 UK pension schemes which, with GBP 631m in commitments, are the single largest investor grouping in the fund. 

Korean investors represent 29% of the LP base with Hanwha Life investing GBP 40m and the firm’s asset management arm underwriting a further GBP 226.5m for a syndicate of Korean institutional investors.

This follows a recent spate of investment by Korean investors in European PPP/PFI funds, with DIFMirova Asset Management, 3i and Equitix all receiving substantial backing.

In the latest in a series of signs that continental European investors have in large part paused their allocations to sterling denominated funds, only GBP 27m was raised for the fund from European LPs. This compares with the GBP 207.37m (39%) that was raised from European LPs for the Dalmore Capital-managed PPP Equity PIP Fund.

The new fund will have a 15-year term – 10 years shorter than its predecessor funds – and an investment period of up to five years. 

DCF 3 will predominately target operational infrastructure businesses in the UK, which have no or limited exposure to GDP, market or demand risk. Target assets will include PPPs and low risk regulated assets.

The fund is able to invest up to 20% of capital proceeds in both construction stage assets and in continental European assets. 

To date the fund, which targets a net IRR of 8-10%, has committed to invest over GBP 280m across four investments.

These include the acquisition of a small portfolio of unidentified UK PPP/PFI assets late last year.

The completion in February alongside GLIL Infrastructure of a 15% stake in regulated UK water utility Anglian Water from 3i Group-managed 3i Osprey LP.

While over the course of two transactions in recent months, Dalmore Capital and Equitix made follow on investments in the M25 PFI both acquiring 12.5% with investments of GBP 206.23m.

Earlier this month it emerged that Dalmore Capital in consortium with Macquarie Infrastructure and Real Assets (MIRA), China Investment Corporation Holding, Allianz Capital Partners, Hermes Investment Management, Qatar Investment Authority and International Public Partnerships (INPP) would acquire the remaining 25% stake in National Grid Gas Distribution Networks, now known as Cadent Gas Networks, for GBP 1.2bn.

Dalmore has offered DCF 3 LPs co-investment in three assets, with investors contributing over GBP 300m to its acquisition of Anglian Water, Cadent and the M25.

Weil, Gotshal & Manges (legal) and Atlantic Pacific Capital (placement) are advisers on the fundraise.

Dalmore also manages the Dalmore Capital Fund (DCF), a 25-year GBP 249m PPP-focused fund formed in 2012 and the GBP 535m PPP Equity PIP Fund.

Founded in 2009 Dalmore Capital is led by Michael Ryan, John McDonagh and Alistair Ray. They are supported by a team of 20 investment professionals and a further 10 finance and support staff.

This most recent closing is understood to have taken total assets under management to in excess of GBP 4bn.