Listed private equity group 3i is planning to float an infrastructure fund on the London Stock Exchange next month, which will raise up to £1.3 billion (€1.98 billion; $2.56 billion) to invest in infrastructure assets.
The Citigroup-managed flotation will look to raise between £700 million and £1.3 billion, which will include a £325 million commitment from 3i’s balance sheet. It will buy out most of 3i’s current infrastructure assets and have first refusal on all future infrastructure deals generated by the group.
3i chief executive Philip Yea said in November the firm could launch a separate infrastructure fund, which offers investors a different return profile compared to a typical private equity investment. Institutions, particularly pension funds, are keen on the reliable, long-term returns offered by assets like utilities, toll roads, hospitals and schools.
3i said the fund would aim to yield a total return of about 12 percent per annum on the initial proceeds of the offering, with an annualised distribution yield of about 5 percent.
The vehicle will be advised by 3i’s current infrastructure team, led by Michael Queen, a former head of its growth capital business and group finance director. To open its portfolio, it will acquire from 3i an investment in water company AWG, a stake in an equity fund called Infrastructure Investments that invests in secondary Public Finance Initiative projects, and a part-share in two more PFI projects in the health and education sectors. It plans to invest all the money raised by the offering in the next two years.
A four-person board, led by former European banker Peter Sedgwick, will oversee the fund. Sedgwick was a vice president of the European Investment Bank until his retirement last year, where he oversaw nearly €4 billion of loans per year to fund PFI initiatives throughout Europe. The other non-executive directors are Peter Wagner, who has substantial experience in the transport sector, Philip Austin, a Jersey-based financier, and Martin Dryden, a non-executive director of fund administrator Mourant.
The fund is another example of 3i broadening its traditional offering beyond its long-standing venture, growth capital and buyouts divisions. It also recently launched a division that will buy minority stakes in public companies, recruiting a heavyweight management team to run the division. According to one industry source, 3i is also considering floating a public equity fund once it is fully up and running.