Brookfield on track to raise $3bn for latest infra debt strategy – exclusive

The manager was originally targeting $1.75bn for its second mezzanine fund, expected to reach a final close as early as end of October.

Brookfield Asset Management has exceeded its $1.75 billion target for its second infrastructure debt fund, raising approximately $3 billion in hard and soft commitments, Infrastructure Investor understands.

The Toronto-based fund manager had already raised $1.8 billion by August, according to an SEC filing, but it has secured additional soft commitments of roughly $1.2 billion for the mezzanine-focused fund, a source familiar with the fundraise told Infrastructure Investor.

Roughly half of the additional capital – $610 million – is coming from Shinhan BNP Paribas Asset Management, which will invest in Brookfield Infrastructure Debt II on behalf of 12 Korean institutional investors, including major pension funds and insurance companies, through a fund of funds structure.

Another $600 million has been committed by non-Korean institutional investors, the source said, adding that Brookfield intends to cap the fund at $2.5 billion but will make a decision by the end of the month, when it expects to receive all signed contracts. It is unclear whether Brookfield will ask LPs to approve an increase in the hard-cap or whether it will use the extra $600 million for co-investments. According to the source, Brookfield does not intend to set up separate managed accounts for BID II.

Brookfield declined to comment.

Another source familiar with the fundraising said roughly 15 percent of the fund’s target size will comprise Brookfield’s own capital. The fund is targeting a gross internal rate of return of 9 percent and net IRR of 7 percent. It will primarily focus on assets in North America but will also invest in Europe, South America and Asia-Pacific.

According to the New Mexico State Investment Council, which in April committed $125 million to the fund, BID II will focus on originating junior/mezzanine capital to infrastructure projects primarily in the renewable power, utility, transportation, data and energy sectors. Capital will be used for acquisition financing, recapitalisation, refinancing and construction, according to NMSIC meeting documents.

BID II continues the strategy of its predecessor, which closed on $885 million in January 2018.

Promising future

Infrastructure debt is an asset class Brookfield plans to focus on, as it seeks to take advantage of opportunities it expects will arise from the current economic environment.

“We believe this is an attractive environment for Brookfield Infrastructure to source opportunities for the foreseeable future,” Brookfield’s chief financial officer, Bahir Manios, said during the firm’s Q2 earnings call in August. “The economic cost of the downturn will be that many industrial companies and all governments will be significantly more indebted. Once the immediate measures to stabilise economies and businesses have been implemented, governments and businesses alike will need to evaluate alternatives to source capital to repay excessively high debt levels,” he said.

Should BID II reach final close by year-end – our first source expects a final close by end of October – it will be the firm’s second vehicle to reach final close in 2020. In February, Brookfield closed Brookfield Infrastructure Fund IV, its fourth flagship infrastructure equity vehicle, on $20 billion, making it the biggest fund the firm has raised across all asset classes.

Additional reporting by Kalliope Gourntis.