I Squared Capital is preparing for the launch of its third infrastructure fund in the coming months, said four sources briefed on the situation.
The New York-headquartered asset manager will launch ISQ Global Infrastructure Fund III with a fundraising target of at least USD 10bn in the first quarter of 2020, added those sources.
The manager, which is yet to formally set a target for the new fund, is also in discussions with investors around possible changes in structure to the new fund, said the same people. One option under consideration is the inclusion of an ‘emerging markets sleeve’ that would see the manager raise capital through two parallel funds. This would see investors have the option of investing in assets in OECD countries only, emerging market countries only, or both, sources said.
The plans for a third fund have emerged as media reports surfaced that Neuberger Berman’s Dyal Capital Partners is close to acquiring a minority stake in the firm.
I Squared Capital declined to comment on the plans.
Investing in emerging markets has been a major component of I Squared Capital’s strategy to date, with the manager’s first and second funds seeking to allocate 20% and 30% of capital commitments in select high-growth economies in Asia and Latin America.
I Squared Capital previously held a USD 7bn final close of its second fund in September 2018 – USD 2bn ahead of its USD 5bn target, and USD 500m above the fund’s original USD 6.5bn hard cap.
The fundraising – run by global placement agent Evercore and law firm Gibson, Dunn & Crutcher – saw the manager grow the size of its second fund by over 2.3x the USD 3bn it raised for its inaugural infrastructure fund on the back of a largely unrealised track-record.
At the time, the manager had only made USD 369m of realisations through its exit of an investment in a publicly traded yieldco and two partial realisations in Irish energy business Viridian and Indian road network Cube Highways.
Since then I Squared Capital has exited investments including its 49% stake in the 232MW Massachusetts Kendall cogeneration facility and US onshore wind developer Lincoln Clean Energy.
The new third fund is expected to be a continuation of I Squared Capital’s existing strategy, targeting controlling equity positions in companies with a view to form investment platforms across the transportation, energy and utilities sectors.
In July the firm struck partnerships with North American companies Venture Global LNG and Twenty First Century Utilities. Both deals offer I Squared the opportunity to build-out the company’s pipelines in the power and LNG sectors. In the same month it was linked to the acquisition of French energy services company Rubis’ European liquid storage business.
I Squared Capital typically targets fund-level IRRs of 15% and charges management fees in the region of 150bps, with a performance fee of 20% over an 8% hurdle.
The manager is also expected to launch fundraising for an inaugural infrastructure credit fund during 2020 under recently appointed head of credit Thomas Murray, who joined the firm in Miami from Apollo Global Management.
I Squared Capital was founded by former Morgan Stanley Infrastructure employees Thomas Lefebvre, Sadek Wahba, Adil Rahmathulla and Gautam Bhandari.
The manager has offices in New York, Houston, Miami, London, New Delhi, Hong Kong and Singapore.