German fund of funds managers VCM Capital Management and CAM Private Equity Consulting & Verwaltungs are set to make their initial foray into infrastructure by raising a €300 million infrastructure fund of funds, according to sources involved with the process.
VCM and CAM plan to begin raising the fund early next year once they complete their previously announced merger and become Sal Oppenheim Private Equity Partners (SOPEP) effective 1 January 2009. The fund of funds will be a trademark of SOPEP, not VCM and CAM. In the meanwhile, the two firms are collaborating on deciding the strategy, allocation and fee structure for the new fund.
One strategy may be to lower fees for limited partners on core investments, such as toll roads, waste management, water treatment plants and similar assets, as a way to make the fund of funds investment more palatable to institutional investors. SOPEP also may allow investors the option of a redemption prior to the end of the fund life, which may be up to 15 years plus a couple of one-year extensions at the election of the investors.
Additionally, SOPEP will seek to diversify beyond core infrastructure-focused funds that earn between 8 percent to 10 percent internal rates of return as a way to enhance returns and make fund of funds a reasonable value proposition to investors.
On the energy side, SOPEP will have a close look at US energy funds. On the core infrastructure side, SOPEP will look to UK funds that invest in private finance initiative (PFI) projects. Overall, the fund will have a global focus and will primarily target middle market-sized funds across different infrastructure investment strategies, making investments of up to €50 million.
Based in Munich, VCM is one of Germany’s oldest private equity fund of fund managers. It has previously raised investment vehicles for US private equity, the European mid-market and international mezzanine capital. Most recently, it closed its VCM VII European Mid-Market Buyout fund in June on €77 million and Advent Chestnut VII on $112 million. Its VCM Venture Capital Europe SICAV fund began fundraising in the second quarter of this year.
CAM, also a fund of funds manager, is based in Cologne and has had its traditional investor base in German-speaking countries in Europe until recent moves to expand to the US. In 2007, the firm closed its fifth fund of funds for private investors on €115 million and initiated a joint venture with US-based Newmarkets Partners to launch a flexible emerging markets fund of funds. It has offices in Munich, Amesterdam, Copenhagen, Madrid and Greenwich, Connecticut.