F2i closes innovative third fund on €3.6bn hard-cap

The close comes after a ‘strict and intellectually rigorous process’ to roll over assets from the Italian group’s first fund, chief investment officer Carlo Michelini tells us.

Italian infrastructure fund manager F2i has closed its third vehicle on an increased hard-cap of €3.6 billion, after launching late last year.

The fund closed with contributions from more than 40 domestic and international investors, following a first close on €3.1 billion last December, with an initial hard-cap of €3.3 billion. The first close included commitments of €450 million each from Canada’s PSP Investments and Singapore’s GIC.

Some €1.7 billion of the fund’s total originated from 11 investors in F2i’s first 2007-vintage fund, with the remainder coming from new investors. Assets remaining from F2i I, such as several Italian airports and renewables group EF Solare, were pooled into the new fund last year.

The first fund had been generating a 12.4 percent IRR and a money multiple of 1.8 times up to the point of pooling last year, with the third fund targeting a similar figure. Fund II, which closed on €1.2 billion, was generating a 28.4 percent IRR through to June 2017.

The 12-year third fund has an investment period of four years from first close, extendible by two years. The hurdle rate is set at 8 percent and carry at 20 percent, with a 65 percent catch up.

Management fees have been segmented based on whether they are applied to new or existing assets and LPs. All investors pay 90 basis points on new assets, but fees for existing assets vary, with new LPs paying 60 basis points and investors from the first fund paying 45 basis points.

‘Pleasantly surprised’

F2i’s chief investment officer Carlo Michelini told Infrastructure Investor the pooling was a “strict and intellectually rigorous process”. He added the manager was pleased to be able to continue work in sectors it felt required more consolidation.

“Eventually, we were quite pleasantly surprised by the end results,” he said. “In terms of value, there was a fair value of around €2 billion for all of F2i I. We had estimated that perhaps we would have €500 million of redemptions. Instead, the net redemptions were only €300 million and many of those were investors that participated in F2i I with very small investment.”

Michelini added that F2i focused on North American and Asian LPs in a bid to diversify the investor base from its Italian foundations. Some 17 percent of the €3.1 billion raised at first close came from North America, up from 3 percent for the entirety of Fund II.

“We had to have a healthy discussion with our investors on the proposed structure, but ultimately the whole thing had to be voted by a general meeting of the investors and we got 98 percent approval,” he explained.

Since last year’s first close, F2i has spent capital adding to its digital infrastructure platform of Enter and EI Towers. It also secured a €1.3 billion deal to buy the 334MW of Italian solar assets held by Terra Firma, cementing its position as the largest owner of solar projects in the country.

Capstone Partners acted as placement agent on the fund.