Exclusive: EQT to close Fund III on €4bn hard-cap

The 12-year vehicle, which has a €2.9bn target, hit the milestone thanks to commitments by the likes of OPERF and the New Jersey Division of Investment, which manages seven pensions.

Sweden’s EQT has raised €4 billion for its third flagship infrastructure fund in a further hint at investors’ unabated appetite for value-add strategies, according to people with knowledge of the vehicle.

The effort brings Fund III to its hard-cap only weeks after a string of deals that saw the firm acquire Dutch-based Delta Comfort and Germany’s GETEC, two energy and telecoms operators. The vehicle is set to close this month, sources told Infrastructure Investor, adding that the offering was nearly four times oversubscribed. The fund has a €2.9 billion target with a €4 billion hard-cap, according to documents from the Oregon Public Employees' Retirement Fund.

EQT declined to comment.

Known investors in the vehicle include the OPERF, the Teacher Retirement System of Texas, the New Jersey Division of Investment, which manages the state’s seven pension funds, and the Maine Public Employees Retirement System.

Investor AB, the Swedish private equity investor which founded EQT in 1994, will also provide 10 percent of total commitments, according to the New Jersey Division of Investment.

Last month, Infrastructure Investor reported that Fund III is aiming to make 12 to 14 investments in mid-market companies with equity cheques ranging from €50 to €300 million. A filing by the New Jersey Division of Investment also shows that the vehicle has a 1.6 percent management fee – discounted to 1.5 percent for first close participants – as well as a 20 percent carry and a 6 percent hurdle rate.

The fund has a duration of 12 years, with three extension options of one year and a six-year investment period. Proceeds will be distributed via a waterfall structure, meaning EQT will only collect carry after LPs have received all of their investment capital and preferred return.

Solid track record

The news, which comes just a month after fellow value-add manager Antin Infrastructure closed its own Fund III on the €3.6 billion hard-cap, is a further sign that investors remain on the hunt for strategies that have proven capable of generating greater returns.

The New Jersey filing states that EQT Infrastructure I, closed in 2008 on €1.2 billion, has to date generated a 17.6 percent net IRR, a 2.39x multiple on invested capital and a 1.59x distributions to paid-in ratio. Its successor, which garnered €1.9 billion, generated a 26.9 percent net IRR, a 1.82x multiple on invested capital and 0.93x on distributions. Both sets of figures were valid as of last June.

LP appetite does not mean investors are not aware of the risks associated with value-add vehicles. In meeting minutes released last month, OPERF identified political volatility, foreign currency exposure and competitive pressures within the infrastructure market as potential concerns related to EQT Infrastructure III. It also warned against potential “style drift” and “strains on organisational structure” driven by Fund III’s increased size.

But OPERF assessed that the firm had mitigants in place for all of these, and concluded that ETQ Infrastructure III would be “an anchor commitment” within its infrastructure portfolio.