Exclusive: Oregon pension boosts GIP III ahead of first close

New York-based Global Infrastructure Partners is gearing up to reach a first close on its third fund next week, sources told Infrastructure Investor, after receiving a $400 million commitment from the Oregon Investment Council (OIC).

The first close for the $12.5 billion fund – which reportedly has a $15 billion hard-cap – will be one of only two closes, with the second and final close planned for the middle of next year, sources previously told us.

Investors in GIP’s earlier vehicles seem to be a driving force behind the fundraising process, with the OIC approving a $400 million commitment to GIP III earlier this week and the Washington State Investment Board allocating $1 billion to the fund last month.

OIC invests all of the State of Oregon’s funds, including the Oregon Public Employees Retirement Fund (OPERF). The institution approved recommendations made by its investment staff and TorreyCove Capital Partners, its pension consultant, at a board meeting on Wednesday.

The commitment is more than double the $150 million OIC pledged to GIP II. The fund closed in October 2012 on $8.25 billion, making it the largest infrastructure fund ever raised.

In 2014, OIC also made a $200 million commitment to GIP Capital Solutions Fund (GIP CAPS), GIP’s debut infrastructure debt fund.

“Since its formation in 2006, GIP has established a leading reputation in the global infrastructure space, with an investment team whose breadth and depth of resources are almost unrivalled,” OIC’s investment staff stated in materials presented to the board.

OIC also cited GIP’s focus on large-scale, complex transactions, which it says enables GIP to enter into joint ventures with dominant industry players. According to OIC, “80 percent of GIP II’s equity commitments have been through industrial joint ventures to date.”

In this year alone, GIP has formed two strategic partnerships. The first was in January with Actividades de Construccion y Servicios (ACS), the Spanish developer. The tie-up involves managing a large existing renewables portfolio and developing new projects.

A second joint venture was announced in June, when GIP partnered with Hess Corporation by acquiring 50 percent of the energy company’s midstream assets for $2.67 billion.

GIP III, which has a hard cap of $15 billion, will have a five-year investment period and a 10-year duration, with four possible one-year extensions. Like its predecessor, it will invest in the energy, transportation and water sectors in developed markets.

GIP is expected to hold a second and final close within months. The firm declined to comment.

The commitment represents OIC’s second investment in the asset class in two months. At the end of October, the pension fund administrator approved a $400 million commitment to Stonepeak Infrastructure Partners II, which is expected to close on $3.5 billion before year-end.

The commitments are in line with OIC’s strategy of shifting towards alternatives. During Wednesday’s meeting, the Council reiterated this ongoing strategic shift. “Returns on these investments are ‘less correlated’ to traditional stocks and bonds and thus improve overall fund diversification,” John Skjervem, OIC’s chief investment officer, said in a statement.

OIC’s target allocation for alternatives, which in addition to infrastructure include agriculture and timberland, is 10 percent. For infrastructure specifically, the target allocation is 20 to 30 percent of the alternatives portfolio or about $1.75 billion to $2.6 billion at current OPERF net asset value, which as of November 30, 2015 totalled $69.7 billion. To date, OIC has earmarked $1.55 billion for investments in the asset class.

OPERF is part of the Oregon Public Employees Retirement System (OPERS), the vehicle through which public employers provide retirement benefits to Oregon's public employees. With more than 900 public employers participating, OPERS covers 95 percent of all state and local government employees in the state.

OPERS is directed by its own independent board and administered by its own agency based in Tigard, Oregon. Its contributions go into the Oregon Public Employees Retirement Fund, which pays OPERS members their benefits.