First State moves to ‘hybrid’ model for European fund

First State Investments, the asset management arm of Commonwealth Bank of Australia, has moved from an evergreen structure for its European Diversified Infrastructure Fund to a 15-year fund with an option for investors to vote for five-year extensions.

First State Investments has adapted the structure of its European Diversified Infrastructure Fund, so that it changes from an evergreen to a “hybrid” model, lying somewhere in between traditional open-ended and closed-end structures.

The move comes against a background of apparent declining investor appetite for open-ended infrastructure funds in Europe. The Infrastructure Market Review and Institutional Investor Survey for 2011 by placement agent Probitas Partners found the percentage of investors interested in open-ended funds declining from 16.7 percent in 2009 to 13.4 percent in 2010 and just 5.0 percent this year.   

The fund starts with an assumption that it will last for 15 years. At periodic strategic reviews held by First State, investors in the fund will have the opportunity to vote to extend the life of the fund in five-year blocks (with no maximum number of extensions). A two-thirds majority vote would be sufficient to trigger an extension.

A spokesman for First State said investors would have various redemption options typically unavailable to investors in closed-end funds. Marcus Ayre, a London-based transactions director for Europe, said: “This is as much liquidity as we can give investors in what is essentially an illiquid asset class.”

Danny Latham pointed out that open-ended infrastructure funds grew up in Australia and were then imported to Europe. However, European investors had become used to investing in closed-end, private equity-style fund structures and this has therefore become the prevailing fund model for infrastructure in Europe. This is despite the fact that, in theory, there is a disparity with the long-term duration cash flows that investors want from the asset class – especially when the assets are in the core infrastructure space.

First State last night picked up a Global Pensions award 2011 for infrastructure.