GIP raises $1.4bn for Spectrum debt fund as final close looms

Global Infrastructure Partners is on track to exceed the target for its GIP Spectrum Fund, currently being about $100 million short of the $1.5 billion it reportedly intends to raise, a source familiar with the fundraise told Infrastructure Investor.

The source added the vehicle, which is targeting gross returns of between 9 and 11 percent, is set for a final close over the summer.

According to meeting documents from the New Mexico State Investment Council, “the fund may offer borrowers a range of senior or subordinated debt instruments, including but not limited to first lien, second lien, unitranche, and holding company debt”.

The fund will be looking to invest in 10-20 deals over a four-year period, primarily focusing on the US and developed European markets, according to the documents.

Terms for the vehicle include a 1.25 percent management fee on invested capital, a 10 percent carry and a five percent hurdle rate with an 80 percent catch-up rate.

GIP Spectrum Fund is part of a duo debt strategy the firm is planning to deploy, along with GIP Capital Solutions Fund II (CAPS II), a higher-risk credit vehicle that will provide less secure mezzanine-level loans and target returns ranging between 11 and 14 percent.

GIP Capital Solutions Fund II has so far raised more than its $1 billion target, reporting in March commitments totalling $1.5 billion, according to regulatory documents published online (here and here). This fund is also likely to soon reach final close, the source told Infrastructure Investor.

Neither the Spectrum or Capital Solutions Funds have a stated hard-cap.

Even before pandemic-related economic volatility, GPs are increasingly offering debt strategies as a way to invest in infrastructure companies in need of liquidity. While returns are capped by the debt’s maturity, covenant agreements that underwrite loans offer investors security that equity cheques cannot. According to Infrastructure Investor data, the industry’s top 15 debt managers raised $84 billion between 1 January 2014 and 31 August 2019.

Jennifer Powers, a former managing director at Mizuho Bank, who joined GIP in 2017, leads the firm’s debt business. Managing partners Reiner Boehning and Steve Cheng manage the GIP Capital Solutions strategy.

GIP began offering a debt strategy in 2014 with the launch of the firm’s first GIP Capital Solutions Fund with a $2.5 billion target. Unlike its successor, CAPS I, which closed below target on $739 million, was structured to provide a range of credit options including senior secured debt, unsecured, convertible debt, subordinated debt and preferred equity, sister title Private Debt Investor reported at the time, citing pension documents.

The fund provided construction and acquisition financing, and liquidity and growth capital, for mainly core infrastructure assets with high barriers to entry in OECD markets. Now, with two strategies that cover a range of risk appetites, GIP is positioning itself to be a lender in the infrastructure market once again.

In December, the firm closed its fourth flagship equity fund – Global Infrastructure Partners IV – on $22 billion. Managing 240 LP commitments, GIP plans to invest the fund by taking majority positions in energy, transportation, water and waste management assets. The firm is also in the early stages of raising a $5 billion emerging markets-focused vehicle.

GIP declined to comment for this story.

Additional reporting by Kalliope Gourntis.