IFM to launch new closed-end fund, shifts open-end strategy

13 September 2019 - 12:00 am UTC

IFM Investors is planning to launch an up-to USD 2bn closed-end infrastructure equity fund focused on value-add assets later this year, according to a recent limited partner presentation.

 

The information was revealed during Connecticut Retirement Plans and Trust Funds’ (CRPTF) monthly investment meeting on 11 September.

 

The pension system will announce a decision on a recommendation to commit up to USD 200m to the IFM Global Infrastructure Fund at the next meeting on 9 October, said a source at the pension system.

 

The new closed-end fund, which has a focus not only on value-add but also growth-oriented infrastructure assets, will have a contiguous risk-return profile with the open-end IFM Global Infrastructure Fund, which targets core and core-plus.

 

The new closed-end fund will likely be managed by the same team that manages its open-end cousin. IFM, the Melbourne-headquartered infrastructure investment manager with about USD 98bn assets under management, is currently deep into internal discussions around the new fund, meeting material show.

 

IFM had been working on a closed-end fund for the better part of two years, as previously reported by Inframation. 

 

IFM did not respond to requests for comments.

 

IFM’s Open-End Global Infrastructure Fund 

 

​​​​​Early on IFM Global Infrastructure Fund (GIF) managers concentrated their holdings in regulated utilities for attractive risk-adjusted returns; however, they now believe it is more difficult to achieve the same returns in those sectors and have shifted the fund’s focus on other assets, according to a memorandum prepared by Meketa Investment Group, CRPTF’s alternative investment consultant.

 

In recent years, the fund has divested a few of its utility assets to capitalize on competitive auctions for listed corporate utilities. It has sold part of its stake in 50 Hertz Transmission, which comprises 9,700 kilometers (6,027 miles) of power lines in eastern Germany, and 25.18% interest in Duquesne Light Holdings, a Pittsburgh-based electricity distribution and transmission company, Inframation Deals data show.

 

The new fund will not only look at midstream and transportation assets but also assess opportunities in the renewables space. Yet, the fund will be more opportunistic and cautious given how much capital has flowed into the renewables sector in recent years. The team would prefer a multi-technology platform, including wind and solar, and perhaps other assets, across several geographies, Meketa noted.

 

GIF’s more recently acquired assets are higher on the risk-return spectrum as those investments mostly reside in emerging markets, have less contracted cash flows, feature shorter-term contracts and have increasingly larger capex plans, Meketa said.

 

The fund recently acquired 50% stake in VTTI, owner and operator of marine storage terminals for oil and refined products, and a 62.5% stake in GCT Container Terminals with British Columbia Investment Management Corporation, according to Inframation Deals.

 

Fund Details

 

IFM’s open-end Global Infrastructure Fund focuses on brownfield, core and core-plus infrastructure investments primarily in western Europe and the Americas.

 

It targets high-quality infrastructure assets and takes an active management approach to improve the performance of the assets over the long term.

 

As of 2Q19, GIF manages USD 25.2bn in assets under management across 16 portfolio companies. It anticipates new investor commitments of about USD 1bn annually.

 

The fund targets an investment size of USD 500m to USD 1bn at a time and plans to make two to three investments a year.

 

GIF focuses on assets that are monopolistic in nature, have high barriers to entry and long useful lives, and demonstrate cash flow resiliency via existing regulatory or long-term contracts.

 

The investments are primarily at the equity level in the capital structure, although the fund does make selected debt, preferred and mezzanine investments.

 

The current portfolio of assets includes airports, ports, toll roads, pipelines, a liquefied natural gas terminal, district heating systems, and water and wastewater assets.

 

As of 2Q19, assets located in the United States account for 34% of NAV, followed by the UK at 21%, and Mexico at 16%. Other country exposures include Austria, Canada, Peru, Poland, Spain and Turkey.

 

Among the assets, Indiana Toll Roads, the one single toll road asset, accounts for 22% of the fund’s NAV, while transportation infrastructure operator Aleatica, which consists of 14 toll roads, three ports, one light rail system and one airport across five countries in Spain and Latin America, comprises 20%.

 

The fund targets an 8% to 12% net IRR and a 4% to 6% annual yield. It has returned 9.0% net of fees since opening to non-Australian investors in January 2009 and 10.6% net of fees since inception in December 2004 to December 2018.

 

For management fees, the fund charges 0.77% for commitments less than USD 300m and 0.65% for those greater than USD 300m, as well as 10% performance fee over 8% hurdle.

 

The fee structure compares favorably to the typical closed-end Infrastructure fund fees of above 1.0% management fee and 20% carried interest, Meketa said.