I Squared Capital reaches first close on second infra fund

24 October 2017 - 12:00 am UTC

I Squared Capital has secured commitments in excess of USD 4bn for ISQ Global Infrastructure Fund II, ahead of an expected year-end final close, Inframation understands.

One source familiar said the fund had recently held a first close in the region of USD 4bn, and is on track to reach its USD 5bn target. The fund, which has a USD 6.5bn hard cap, is expected to hold a series of closes as it moves towards an expected year-end final close, sources said.    

The fundraise is being led by Evercore (placement agent) and Gibson, Dunn & Crutcher (legal advisor).

ISQ Global Infrastructure Fund II will invest in “medium-sized” energy, utility, and transportation-based assets with enterprise values ranging from USD 200m – 400m according to documents reviewed by Inframation. The fund is targeting a 15% – 20% net IRR. 

The fund has a 10-year term and will target investments across the utilities, power, renewables, and transport sectors.

I Squared Capital intends to invest more than 50% of the fund’s capital in energy related investments. Investments in water, wastewater, and transportation assets represent the remaining 50%.

Two thirds of the investments will be made in North America and Europe, while another third will be devoted to select high-growth economies in Asia and Latin America. 

I Squared  on 24 October announced that it has agreed to acquire BP Energy Partners’ portfolio company Pinnacle Midstream, LLC for an undisclosed fee. Pinnacle provides midstream solutions in the Delaware portion of the Permian Basin of West Texas. 

RBC Capital Markets (financial) advised Pinnacle on the transaction and Thompson & Knight (legal) served as legal counsel to BP Energy Partners.   

The firm also on 3 October closed on the acquisition of Hong Kong-based Hutchinson Global Communications fixed line business. 

Investors
The Missouri Local Government Employees’ Retirement System recently committed USD 100m to the fund, following a 22 June commitment of USD 150m by the Texas Municipal Retirement System.

The investor pool includes the New Mexico Educational Retirement Board, the Employees’ Retirement System of Rhode Island, and the Hawaii Employees’ Retirement System. Notably, the three LPs also made contributions to I Squared Capital’s first infrastructure fund.

I Squared Capital will invest up to USD 50m or 1% of total fund commitments and receive 20% of the fund’s profits, according to documents.

Fund fees and structure
I Squared Capital mandated a five year investment period for the fund. It will during that period charge management fees of 1.60% for commitments of USD 100m and 0.95% for commitments of USD 300m or more.  

The fund manager will also charge a performance fee of 20% over an 8% hurdle rate. The management fees are expected to be offset by placement agent fees, organizational fees, and other overhead costs.

Prior fund
As of 1 July 2017, ISQ Global Infrastructure Fund drew approximately USD 2.10bn from investors and generated a return of 1.1x paid-in capital. The fund generated a new IRR of 21.5% by the end of 2Q17. 

The fund’s current portfolio is below:

Asset Date of Investment Sector Country
Amplus Energy Solutions Jun 2015 Renewables India
Asia Cube Solar143MW Solar Farms Feb 2017 Renewables China
Cube Hydro Partners  Jan 2015 Renewables USA
 DTE CoolCo Acquisition Jun 2014 Power USA
Duke Energy Aquisition LatAm Assets Oct 2016 Renewables Argentina
Glen Park 32.65MW Hydroelectric Facility Acquisition (2016) Aug 2016 Renewables USA
ISQ 30.4MW Landfill Gas-to-Energy Projects Acquisition (2016) Mar 2016 Power USA
Jaipur Mahua Tollways Dec 2014 Transport India
Jiangsu Province Jiaqing Water Services (China Cube Water) Sep 2014 Environment China
Lincoln Clean Energy Sale (2016) Jan 2016 Renewables USA
North Carolina 216MW Hydroelectric Power Plant Portfolio Acquisition (2016) Feb 2017 Renewables USA
Oregon 869MW Clean Energy Center Nov 2014 Power USA
Viridian Sale Apr 2016 Renewables United Kingdom
Whiptail Midstream Sale (2015) Mar 2016 Power USA
York Haven 20MW Hydro Station Nov 2015 Renewables USA