Hastings founder sets up FoF vehicle targeting wholesale investors

Mike Fitzpatrick, who founded Hastings Funds Management in 1994, is hoping to raise A$200m for a vehicle that will invest in funds managed by ICG and ATLAS.

Newly established TRUE Infrastructure Management has begun raising its first fund. The firm is targeting an initial A$200 million ($146 million; €123 million) from non-institutional investors for a fund of funds vehicle that will invest with Infrastructure Capital Group and ATLAS Infrastructure.

The firm was founded this year by Mike Fitzpatrick, who set up Hastings Funds Management in 1994. He became a director and major shareholder in ICG in 2009.

Peter McGregor, formerly CEO of the Australian Securities Exchange-listed Australian Infrastructure Fund managed by Hastings, has been appointed as TRUE’s new chief executive.

The firm is aiming to raise A$200 million before the end of 2021, McGregor told Infrastructure Investor, and has an ambition to grow to A$500 million over the next five years. It is targeting a total annual return of 8 percent-plus after fees, inclusive of a 4 percent gross dividend yield.

TRUE is seeking to raise its funds from wholesale investors, not institutional investors, in a similar approach to that taken in recent years by other new entrants, such as Infrastructure Partners Investment Fund. The minimum initial investment size in TRUE’s fund will be A$50,000.

All the fund’s initial capital will be deployed in vehicles managed by ICG and ATLAS, with 80 percent deployed to ICG.

“ICG is a very disciplined investor,” said McGregor. “They focus on the core and super core space, which we think is the right place to be now, and they have a strong track record in mid-market opportunities, which is where we believe the real sweet spot is.”

He said the firm has also decided to invest with ATLAS to ensure the portfolio has a listed, liquid component: “ATLAS gives us diversity and a global exposure, bearing in mind that ICG is solely focused on Australia. It enhances the risk-return profile of the overall fund to have a relatively small proportion of the fund invested in global infrastructure equities, and it’s important as a liquidity mechanism for us.”

TRUE intends to deploy up to A$500 million with the two managers, given their pipeline of opportunities. However, McGregor said the firm was open to working with other managers in due course: “In the longer term, we envisage having a broader base of managers across the portfolio.”

McGregor said the time was right to provide access to the infrastructure asset class to non-institutional investors for a variety of reasons, and that covid-19 had only made those reasons more compelling.

“Firstly, we’ve seen a number of the major Australian finance stocks significantly reduce their dividends, and yields have become even harder to find,” he said. “As interest rates continue to trend downwards, it was already getting harder and harder anyway to find low-risk income streams that have some long-term growth too.

“Secondly, there has obviously been a material impact on the broader economy from the coronavirus, so the government will need to put in place policy settings that drive economic growth in Australia, with infrastructure a significant component of that.

“And thirdly, covid-19 has demonstrated that there isn’t really a single homogeneous infrastructure sector. Those subsectors with significant GDP correlation have been hit hard, which has led to volatility in the share prices of those listed transport infrastructure stocks. We have a portfolio of defensive core and super core assets that haven’t experienced that volatility, so we’re excited and we think it’s a really interesting opportunity.”

The firm’s portfolio composition would differ significantly from that offered by IPIF, McGregor argued, with TRUE focusing on funds that hold stakes in assets in the renewables, utilities, energy and transport sectors. The firm said in a statement that this would include a focus on the “most defensive and lowest-risk characteristics”, mainly those with contracted revenues or that are regulated.

“It presents different value propositions to investors rather than having two opportunities that look the same,” said McGregor. “We think that, for a lot of investors, there will be room for both in their portfolios.”

One of the firm’s initial investment opportunities will be ICG’s Australian Renewable Energy Trust. ICG launched the vehicle in October in partnership with Engie Australia & New Zealand and Mitsui. It had previously acquired a 75 percent interest in the vehicle, which had been spun out of International Power (Australia) Holdings by the two investors.

ARET is aiming to develop a pipeline of more than 1.3GW of solar and wind development projects throughout Australia. The trust was seeded with Willogoleche Wind Farm in South Australia.