I Squared Capital is seeking to raise $12 billion for its third flagship infrastructure fund, according to documents published by the Pennsylvania Public School Employees’ Retirement System, which is investing with the Miami-based firm for the first time.
Penn PSERS has agreed to commit $400 million to ISQ Global Infrastructure Fund III, following the recommendation of its consultant Hamilton Lane, which conducted due diligence via video in May. The commitment brings Penn PSERS’ infrastructure allocation to 2.1 percent, within the range of its 0 to 3 percent target.
According to documents from Penn PSERS’ August meeting, the firm’s latest vehicle will, like its predecessors, take a “sector-agnostic” approach and employ two different strategies. The first is a mid-market platform building, with mid-market defined as equity values less than $500 million and EBITDA values less than $150 million.
The second strategy is more opportunistic with the fund and its co-investors targeting larger investments with an element of distress or pricing dislocation. The fund will generally seek a controlling interest in each investment. Fund III will target approximately 15 to 20 equity investments in the range of $200 million to $1 billion, the pension documents revealed.
An example of I Squared’s platform building is Cube Hydro Partners, a portfolio from its inaugural fund. After creating the business in 2015 with the purchase of a single 6MW hydro asset, the firm built a 385MW company that, along with the exit of two other portfolio assets, helped I Squared realise $2.8 billion from its investment when it sold it in June.
According to the pension documents, ISQ Global Infrastructure Fund I, which closed in 2015 on $3 billion has, as of 31 March, generated a 16.4 percent net return and a 1.6x net money multiple. The firm’s successor vehicle, which closed on $7 billion in 2018 was generating a 14.2 percent net return and 1.1x net money multiple.
While both of these funds, invested mostly in OECD countries in the energy, transportation, utilities and telecommunications sectors, around a third of both funds were mandated to invest in non-OECD markets.
According to the pension documents, a first close was expected in July, a second close is expected in September and a final close within 18 months of the first close. I Squared will commit at least 2 percent of the total to invest in or alongside the fund.
It’s unclear whether a first close was held last month as expected. I Squared did not respond to a request for comment.
Additional reporting by Kalliope Gourntis.