Exclusive: First State eyes January close, plans second fund

The Australian firm is on track to raise at least €500m for Series Five of its European Diversified Infrastructure Fund, which would bring the vehicle’s total size above its original target of €1.5bn.

First State Investments will reach a final close on its latest fundraising effort at the beginning of 2015 and plans to launch a second fund within the next couple of years, according to top executives from the Sydney-headquartered firm.

Niall Mills, head of asset management at First State, and Volker Häussermann, a director at the firm, told Infrastructure Investor that Series Five of the company’s European Diversified Infrastructure Fund (EDIF) was “well advanced” towards its target of €500 million and would reach a final close “very early in January next year”. This would bring the fund’s total size above its target of €1.5 billion, they said, and “possibly close to €2 billion”.

EDIF started its life as an open-ended vehicle in 2007 but then shifted to a hybrid structure in 2009, raising capital from institutional investors in successive “series”. The Fund’s Series Four, which saw EDIF collect an additional kitty of more than €600 million, was closed in September 2013 and brought the fund’s overall size to €1.3 billion. It is now 80 percent deployed, according to Mills.

The firm anticipates that Series Five will be fully invested within a period of about 18 months and will execute between three and five transactions. First State then plans to launch the vehicle’s successor with a similar target size, “perhaps as soon as in H2 2016”, the pair said. While the exact structure of EDIF2 is still being worked on, they noted, it is possible that it will also be raised in series.

EDIF has a duration of 15 years, which can be extended in five-year blocks if voted for by a minimum of two-thirds of its limited partners. It targets low double-digit net returns to investors, comprising approximately 50 percent cash yield and 50 percent capital growth.

The fund last week agreed to the acquisition of Erdgasversorgungsgesellschaft Thüringen-Sachsen (EVG), a 1,168-kilometre gas distribution network operating across a number of states in central Germany, from utilities E.ON and Verbundnetz Gas (VNG). The transaction, which will be EDIF’s seventh, is expected to close within the next few weeks.

Other assets held by the fund include Ferngas Nordbayern (Ferngas), the owner of a 2,117-kilometre gas distribution network in Northern Bavaria. Acquired by EDIF in December last year, Ferngas’ network is neighbouring that of EVG.