Exclusive: IAM eyes infra equity fund

Having launched an infrastructure equity unit last month, the Toronto-based asset manager is exploring options to target Canada's "hugely underserved" mid-market.

After operating in the private debt space for nearly 30 years, Integrated Asset Management (IAM) will venture into equity as it seeks to take advantage of what it sees as a strong pipeline in Canada's infrastructure mid-market.

“In Canada there is a lot of capital flowing to infrastructure and it tends to be through the P3 [public-private partnership] model, where pursuit costs are high,” Theresa Shutt, IAM's chief investment officer, told Infrastructure Investor in a phone interview. “But where we've had our success both on the infrastructure side as well as on the corporate side is that mid-market.”

According to research conducted by Shutt and her team, there are currently about 600 projects with a cost of C$150 million (€105.0 million; $115.0 million) or less in Canada, which are not P3 candidates. “It's a hugely underserved market,” Shutt remarked. “And it seems to be a space where there is a real lack of traditional lenders participating.”

While the infrastructure equity strategy has not yet been finalised, it started to take shape last month with the arrival of Michael Kosiancic, who was named president of IAM's newly created infrastructure group.

“Michael is someone a number of our senior people have known for some time,” said Philip Robson, who heads IAM's private debt group. “He has a track record of being an equity investor in the mid-market, focused on smaller transactions, both greenfield and brownfield.”

The infrastructure group will operate outside of the debt group and focus on equity. Infrastructure debt will continue to fall under the private debt group.

“In the private debt space, because we're investment grade, we are typically talking to the fixed-income individuals [on the client side],” Shutt explained. “If you're talking about corporate private debt, infrastructure private debt, it's that kind of relationship; for infrastructure equity, private equity you're probably talking to the alternatives group.”

The infrastructure equity group will focus on core infrastructure, including transportation, water/wastewater, social infrastructure, as well as renewables. The group will collaborate with the private debt group “in terms of things we hear and see,” Robson explained, “but we won't both invest and lend to the same transaction.”

Asked whether IAM was planning to market an infrastructure equity fund, Robson replied: “We're headed down that path, but we're still pretty much 'flesh on the bones', if you will,” noting that it could be eight to 10 months before IAM launches an equity fund.

“We want this to be more than 'hey, we've got a good idea, let's raise a fund,” Robson commented. “We want to make sure that we have interested investors, interested developers, interesting opportunities to invest the money and then we can line that all up in an intelligent fashion.”

The firm is currently in market with its first infrastructure debt fund. Launched in June, IAM has already raised C$125 million and expects to close on C$300 million to C$325 million in the first quarter of 2016.

Although the IPD Infrastructure Debt Fund is IAM's first infrastructure debt vehicle, the firm has invested approximately C$240 million in infrastructure and project finance-type investments within its existing portfolio of corporate debt.

The loan terms of the corporate debt funds have a minimum of five years and a maximum of 10 years. “We appreciated through feedback from investors that there was a demand for longer duration, longer-term funds with long-term assets. Infrastructure was obviously the right strategy,” Shutt said, explaining IAM's decision to launch an infrastructure-specific debt vehicle. “We had experience in that space, both in greenfield and brownfield, so it was an attractive opportunity for us to pursue.”

In addition to corporate debt, IAM's alternative strategies also include real estate. The private debt business was established as First Treasury in 1987, which IAM acquired in 2000. On Tuesday, IAM closed its fifth fund – Integrated Private Debt Fund V – on C$672 million, its largest fund to date, bringing its total assets under management to C$2.4 billion.