DIF closes its largest fund on revised €1.9bn hard-cap

Dutch fund manager DIF has closed its fifth flagship fund – its largest ever – on its revised €1.9 billion hard-cap.

The vehicle – which was originally targeting €1.5 billion with a €1.75 billion hard-cap – experienced a 100 percent capital re-up rate, with existing investors committing the €1.15 billion raised for DIF IV to DIF V. The majority of the latter’s LPs came from Europe, but a record 20 percent came from outside the continent, with about 10 percent coming from Asia and the other 10 percent coming from North America and the Middle East.

“We raised our hard-cap for two reasons,” managing partner Wim Blaasse told Infrastructure Investor. “On the one hand, we attracted a lot of investors we wanted to bring on board, including some new names that took longer to finalise due diligence. On the other hand, given we started investing quite quickly and have already deployed around one-third of the revised hard-cap, we thought it would benefit us to raise more money to avoid having to return to the market too quickly.”

As previously reported, DIF V has already invested in eight assets and is about to close on a further two deals. Blaasse said the fund is aiming to invest 60 to 70 percent in PPP deals, 20 to 25 percent in regulated assets and about 10 to 15 percent in renewables. The majority of those investments will be in Europe, with about 25 to 30 percent of investments in North America and the remainder in Australia.

It hasn’t escaped Blaase, though, that DIF has just raised one of the largest PPP-focused funds at a time when that market is experiencing lumpy dealflow and heightened competition.

“I think the usage of PPPs goes in waves. The UK was a big market a few years ago; then France overtook it, but that pipeline of projects got done and now that market is picking up again. Australia was slow for the last two years, but now has quite a pipeline again. It’s not a stable pipeline every year, with the possible exception of Canada,” he said.

“But we still see many primary PPP opportunities in the countries we invest in. On the secondary side, we also see dealflow, but it’s quite competitive and, given our [gross 13 percent] return target, we’re not bidding on plain vanilla deals.”

That return target, as Blaasse admitted, “is a bit lower than the target for DIF IV and previous funds, which reflects the higher competitiveness in the market and the fact we have to be more selective on deals to achieve our target returns”.

The types of deals DIF is going for in 2018 have also evolved. “Five to 10 years ago, the PPP market was mainly about social infrastructure; now it’s more about roads and transportation, which are larger and thus require more equity, which fits in well with our increased fund size.”

But it’s not all about larger deals, Blaasse said. “We also still target relatively small deals – €20 million to €30 million of equity – and not everyone is willing to work hard for these small tickets, because you do need the resource, which is why we have a team of almost 100 people.”

If there is one area where DIF plans to be less active, as a buyer, it’s renewables. “We are surprised at the low returns people are accepting on what we consider to be quite aggressive power-price assumptions and sometimes out-of-balance risk returns,” Blaasse said.

That doesn’t mean there isn’t an opportunity for DIF as a seller, though, especially as it starts to exit DIF III (it sold DIF II to Dutch pension manager APG last July). “It’s a good time to sell some of our renewables deals,” Blaasse acknowledged. “Selling assets is a continuing theme for DIF going forward, maybe in smaller sub-portfolios than wholesale deals to take advantage of market circumstances. We are doing that in Canada, for example, with the sale of four of our solar assets.”