I Squared Capital is planning to launch its first infrastructure debt fund after receiving $800 million in commitments from investors for a dedicated credit strategy, according to a source familiar with the matter.
The firm has received commitments from “several” institutional investors for a mid-market mezzanine-level infrastructure debt strategy that will seek 7-10 percent gross returns, according to the source. The commitments will be managed separately from a pooled-capital vehicle that I Squared expects to formally begin raising soon, the source explained. A fundraising target has yet to be set.
However, another source told Infrastructure Investor that the separate account was launched in collaboration with Korea Transportation Asset Management (KOTAM), a joint venture between Kukje Maritime Investment Corp and commercial lender Hana Bank. This source confirmed that NH Investment & Securities has also committed capital to the SMA, which includes other Korean institutional investors only.
The firm is “taking the same playbook for the equity strategy and applying it to debt,” the first source added, with investments to be focused on the energy, transportation, utility and telecommunications sectors primarily in OECD markets. I Squared will commit up to $150 million per deal.
Infrastructure debt has gained traction among investors in recent years, and especially since the pandemic-related market turbulence earlier this year, as a way to gain exposure to sought-after assets even when owners are not ready to sell. In Infrastructure Investor’s ranking of the largest infrastructure debt managers, the top five firms have together raised $52 billion over the past five years for dedicated credit strategies.
I Squared has been laying the groundwork for such a strategy for more than a year. Last June, the firm hired debt specialist Thomas Murray from private equity firm Apollo Global Management to serve as its head of credit investments.
Since its founding in 2012, I Squared has so far raised two infrastructure equity funds, collecting $3 billion in 2015 and $7 billion last September. It is currently raising ISQ Global Infrastructure Fund III.
The third fund is targeting $12 billion and will deploy two different strategies, according to documents published by the Pennsylvania Public School Employees’ Retirement System, which committed $400 million to the strategy. One part of the strategy is to make mid-market equity investments of less than $500 million and EBITDA values of less than $150 million. The other part is to take controlling interests in infrastructure assets requiring investments of between $200 million and $1 billion.
I Squared’s first two funds had, as of 31 March, generated a 16.4 percent and 14.2 percent net return, respectively, with each generating 1.6x and 1.1x net money multiples, according to the pension documents.
Additional reporting by Ji Hyun Kim.
This article was updated to include information about investors committing to the separate account in the third paragraph.