3i hits the road with listed infrastructure vehicle

3i will begin meeting potential investors today about its latest infrastructure fund, which could raise up to £1.3 billion (€1.9 billion; $2.5 billion) by floating on the London stock exchange.

3i begins its two-week roadshow this afternoon and expects to list the fund in March. The flotation is expected to raise between £700 million and £1.3 billion, depending on investor demand, which will include a £325 million commitment from 3i’s own balance sheet.

Michael Queen, managing partner of 3i’s infrastructure team, said in a conference call that the fund had been created to give investors access to assets across the full infrastructure lifecycle. Around 50 percent of the fund’s assets will be mature investments, while 30 percent will be in the “ramp-up” stage and 20 percent in the “new-build” stage.

A listed vehicle was more appropriate than a closed-end fund because it allowed 3i to hold assets for a much longer period than a typical private equity fund structure would allow, he added.

The capital will be invested over the next two years on deals in Europe, the US and Asia – particularly India. Queen said the UK had traditionally led the way in this sector, but opportunities were on the increase in the US and India.  “The UK has been ahead of the game in terms of PFI initiatives and privatisation programs. But now all the Western economies are starting to recognise that they need to engage the private sector in the provision of infrastructure.” There was set to be “an explosion” in the US market in the next few years, he said, citing the upgrading of highways as one example.

Queen said 3i was targeting a total annual return of 12 percent after fees, which will comprise a 1.5 percent management fee on current assets, plus 20 percent of the total returns once a hurdle rate of 8 percent had been exceeded. He said the vehicle would set new standards of transparency and good corporate governance, which will give 3i a competitive advantage when bidding for assets.

The fund would deliver low volatility returns with low operational risk, Queen said. “We’re looking for long life projects, with a very long operating concession.”