Brookfield Asset Management’s fourth unlisted infrastructure fund has closed on $20 billion, becoming the largest fund the firm has ever raised in any asset class, Sam Pollock, head of the infrastructure group, told Infrastructure Investor.
Brookfield Infrastructure Fund IV received an average $90 million commitment each from 170 institutional investors from both developed and emerging markets. The vehicle – which is targeting gross returns between 13 and 15 percent – will invest in core infrastructure assets including hydroelectric plants, data centres, utility companies and rail operators.
The fundraise, which took around 15 months and exceeded Brookfield’s $17 billion target, is set to be the largest infrastructure fund raised this year and underscores investors’ appetite for the asset class.
“Lack of volatility is really key to a lot of their strategies,” Pollock told Infrastructure Investor, adding that Brookfield’s infrastructure funds have on average provided a 4-6 percent yield over the life of the fund. “Having the opportunity to invest in a safe, secure asset class like infrastructure […] they earn a total return that’s well in excess of what they’d ever achieve on fixed income investments, and in most cases their other equity [investments] over a long period of time.”
Brookfield, which committed $5 billion to BIF IV from its publicly-listed vehicles – Brookfield Infrastructure Partners and Brookfield Renewable Partners – has already deployed around 40 percent of the fund’s $20 billion, according to Pollock.
So far, the firm has announced deals including a C$750 million ($566 million; €521 million) investment in Canadian hydroelectric company TransAlta and a joint acquisition, along with Singapore’s sovereign wealth fund GIC, of North American rail company Genesee & Wyoming for $6.4 billion.
Brookfield’s infrastructure strategy seeks assets in “recession-proof industries,” according to Pollock. “The sectors that will perform better are the ones that have long-term contracts in place with very solid counterparties.”
Most notably, the firm has invested nearly half of the $8 billion BIF IV has deployed so far in data infrastructure assets, a sector gaining traction in the industry but one that’s still considered relatively new. One such BIF IV deal includes the co-acquisition of Brazilian data centre business Ascenty for $1.8 billion, along with Digital Realty Trust, a US-based data centre company.
“Data continues to be an area of growth for us,” Pollock said. “I just don’t see data consumption dropping dramatically anytime soon.”
Brookfield marketed the fund with a mandate to invest in sectors including renewables, energy, transportation, data and utilities. The firm plans to invest around 40 percent of BIF IV’s capital in North American assets with the rest to be spread evenly throughout Europe, South America and Asia-Pacific.
According to documents published by the Ventura County Employees’ Retirement Association, which committed $50 million to BIF IV in October, the ticket size of investments will range between $400 million and $1 billion. The fund is expected to make 20-25 distinct transactions through roughly 10 portfolio companies.
“BIF IV will primarily target mature assets with sustainable and growing cashflows due to the lower risk profile,” according to the pension documents. But it may also invest in greenfield development projects “in certain situations if the manager believes the risk-adjusted return profile to be attractive and that the risks can be mitigated”.
The firm is charging a 1.5 percent management fee on committed capital during the investment period and 1.5 percent on invested capital during the post-investment period. The fund comes with 20 percent carried interest on an 8 percent hurdle rate, the pension documents revealed. Its life is 12 years with two possible one-year extensions.
In addition to VCERA, which is a new institutional investor for Brookfield, other known LPs that committed to BIF IV had also committed to its predecessor BIF III, which closed on $14 billion in July 2016. They include the New York State Common Retirement Fund ($500 million), the Oregon Public Employees’ Retirement System ($400 million) and the Teacher Retirement System of Texas ($300 million), according to Infrastructure Investor data.
Infrastructure fundraising had its second-best year in 2019, with investors committing $97.3 billion across 61 funds, according to Infrastructure Investor data. Nearly a quarter of that amount went to Global Infrastructure Partners IV, which closed in December on $22 billion, making it the largest infrastructure vehicle ever raised.