UK government-owned CDC Group has committed $750 million (€511 million) to emerging markets manager Actis’ second infrastructure fund, as well as seeding the fund with $167 million African energy assets, according to CDC chief executive Richard Laing.
Actis will raise around $1.25 billion in total, with the remaining commitments coming from other investors, Laing said. The fund will be invested over 15 years given the long-term nature of creating infrastructure assets in emerging markets.
CDC’s legacy African energy assets have been owned by energy company Globeleq since Actis split from CDC.
Last year Globeleq’s assets in North Africa and Asia were sold to Tanjong and Aljomaih for $528 million shortly after it sold its Latin American businesses in May 2007 to Indian construction group DS Constructions and Israeli investment firm Israel Corporation for $542 million. This left the rump African assets, which will continue to be managed by Globeleq.
“We expect the fund to more than match the returns we got from Globeleq of around about 18 percent,” Laing said. Based on the Actis team’s historical experience he expected net internal rate of returns of 20 percent.
Laing said emerging markets were a good place to be investing in the current economic climate, despite worries in the equity markets that emerging markets have not fully decoupled from the problems in more developed markets.
“The decoupling and recoupling [of emerging markets] is often presented in very stark ways. But there is a degree of relationship between economies. Clearly China, for example, depends on exports to other economies. But the question is to what extent does it depend?”
The fund will invest predominantly in the power sector as well as investing in transport, telecoms and energy across Africa as well as South and South East Asia. It will make development stage investments, build greenfield projects and also work on mobile power generation.
It will invest in asset intensive businesses, involving long-term contracts, often regulated and usually generating stable and predictable cashflows.