I Squared closes debut fund on $3bn

Fifteen months after beginning fundraising efforts for its debut infrastructure fund, New York-based I Squared Capital has reached final close on its legal hard cap of $3 billion, the fund manager said in a statement today. According to Infrastructure Investor Research and Analytics, ISQ Global Infrastructure Fund is the largest first-time infrastructure vehicle raised since 2009.

The news comes just four months after Infrastructure Investor reported that I Squared had already exceeded its initial $2 billion target.

“We commenced fundraising in mid-2013 and received strong reception in the market,” I Squared principal and head of investor relations Andreas Moon said today during a call, adding that ISQ Global Infrastructure Fund had an excess demand of another $500 million beyond its hard cap.

More than 45 investors from the US, Europe, Australia, the Middle East and Asia invested with I Squared. “This really includes a whole gamut of sophisticated investors from around the world – pension funds, superannuation funds, sovereign wealth funds, as well as insurance companies, asset managers and family offices,” Moon explained. 

Campbell Lutyens acted as placement agent for the fund. 

To date, the vehicle has made eight investments across 22 individual assets, deploying $725 million which includes co-investment capital. In the US, the fund has invested in hydropower, gas-fired power generation under construction and district energy systems.

“We’re looking to deploy two-thirds in OECD, one-third in non-OECD countries, with a focus on India and China,” I Squared partner Adil Rahmathulla said during the same call.

I Squared has already invested in waste water treatment plants in China and has also formed a joint venture with the International Finance Corporation (IFC), a member of the World Bank, to invest in toll roads and logistics in India.

Asked if the firm had identified other emerging markets to be of interest, Rahmathulla said: “We opportunistically review Latin America and in particular Chile, Peru and Colombia. We think they offer very attractive fundamentals both on the power side as well as on the transportation side.”

I Squared is for now seeing attractive opportunities in the US on a risk-adjusted basis in power, including natural gas-fired generation and renewables, and midstream. Regarding midstream and the low price of oil, Rahmathulla said it created an opportunity rather than a threat.

“These would be purchases made during the trough of the commodity cycle. The key with midstream is to ensure that the commodity exposure is mitigated through long-term contracts and strong locational attributes that are difficult to replicate,” he explained.

I Squared Global Infrastructure Fund is a 10-year fund that will focus on middle market opportunities ranging anywhere from $75 million to $400 million, one of the fund’s characteristics that Rahmathulla believes appealed to its investors.

“The differentiating factors, I think investors found attractive, are our middle market strategy, which means we are not looking at large cost of capital auctions as well as the fact that we are truly global with offices in New York, Houston, London, Hong Kong, Singapore and Delhi.” 

The firm could also consider larger investments of up to $800 million, in which case it would bring in its co-investors.

In addition to being a globally diversified team, many of the 51 investment professionals distributed throughout I Squared’s offices have a combination of investing, operating and policy experience within the energy, utility and transportation industries.

This is one of the reasons why I Squared will invest in both greenfield and brownfield assets.

“We have an operations team with significant construction experience and the ability to understand and carefully price the risks embedded in these deals,” Rahmathulla said. “We look to mitigate construction risk through carefully structured fixed price EPC contracts that provide protection against cost overruns or time delays.”

He said the team aimed to fully deploy the vehicle within 24 to 30 months.

Investors in the fund, which will focus on energy, utilities and transportation, include Denmark’s PKA AIP, the New Mexico Educational Retirement Board (NMERB), the Employees’ Retirement System of Rhode Island and the State of Hawaii Employees’ Retirement System.

Founded in 2012 by former executives of Morgan Stanley including Sadek Wahba, Gautam Bhandari and Rahmathulla, I Squared Capital specialises in energy, utilities and transport in the US, Europe and select high-growth markets.