African Infrastructure Investment Managers has closed its third fund on $320 million, falling short of its $750 million target.
African Infrastructure Investment Fund 3 was launched in 2017 and garnered 48 percent of its commitments from development finance institutions. Paul Frankish, head of strategic initiatives at AIIM, told Infrastructure Investor that the remainder had come from South African and Asian institutional capital. He maintained that the final size was a good amount to invest with in relation to the market opportunity.
“The initial targets that were published were very much aspirational,” he said. “There was an element of non-realism to them, which we acknowledged at the time. The targets that were set were looking to attract initial investor engagement, so in terms of internal targets, they were lower than what had been published.”
Frankish added that the average fund sizes for African infrastructure were around $230 million, and so the current size would allow AIIM to deliver on its ticket sizes of between $20 million and $30 million.
“Looking to raise larger funds does start bringing into question deployment in that five-year commitment period,” he said.
Frankish said AIIF3 had completed nine investments, and that a 10th was close to being agreed. Investments include an airport holding company operating in Gabon, Côte d’Ivoire and the Republic of Congo (Brazzaville), a thermal power station in Mali and a renewable energy development company in Burkina Faso.
The vehicle’s predecessor fund, AIIF2, raised $547 million in September 2011. Frankish said the figure was partially bolstered by exchange rates at the time, given AIIM partially raises in South African rand. AIIF3 is also the first fund AIIM has raised since the firm became wholly owned by Old Mutual, which bought Macquarie’s share in 2015 after 15 years as a joint venture partner.
“The Macquarie investment process, which was a big part of the benefits they brought to the business, has been completely institutionalised into the AIIM business,” Frankish said.
Earlier this year, French fund manager Meridiam re-opened its own African infrastructure fund, adding $339 million to a vehicle that had previously closed on $205 million. Last year, Danish firm AP Moller Capital raised about $1 billion for its African infrastructure-dedicated fund.
“There’s certainly a greater appreciation of the opportunities that are in the market,” Frankish said. “There’s still a big gap between the perceived risks and the actual risks we see on the ground. There needs to be an appreciation that this is a growing market.
“The way in which the deals are structured allows for very strong risk mitigation and true equity returns, which people are increasingly seeing competition for in developed markets. A lot of the returns [in developed markets] are coming out of financial engineering and multiple expansion in terms of exits. In Africa, the returns are still being generated out of value-add and true equity returns.”