Innisfree raises £360m for PFI investment

The UK infrastructure investment group has closed its third fund dedicated to investing in private finance initiative projects in the UK and Europe.

Innisfree, the London-headquartered infrastructure investment group has closed its third fund on £360 million (€530 million; $645 million).

The fund, Innisfree Primary Fund 3, will focus on bidding for and investing in public-to-private partnership (PPP) and private finance initiative (PFI) projects in the UK and continental Europe.

Investors in the fund included local authorities, endowments and a number of family office groups. Helix Associates acted as placement agent to the fund.

Innisfree has fully invested its first two primary funds, the 1996, £85 million Fund 1 and the 1999, £150 million Fund 2. Previous institutional investors in Innisfree’s funds have included Henderson Private Capital, Hermes, Norwich Union and the Prudential.

David Metter, chief executive of Innisfree said that approximately £105 million of the new fund had already been committed to a pipeline of projects.

According to a source close to the firm, Innisfree has the ability to invest up to 30 percent of the new fund in Europe, where UK procurement methods are becoming increasingly popular, but that will depend on the dealflow coming out of the region.

Typical PFI projects see ten per cent of the capital provided as equity and the remainder as debt, with Innisfree preferring to take between 50 and 75 percent of the equity stake available.

Projects in which the firm is at preferred bidder stage include the redevelopment of St Bartholomew’s Hospital in London, a Ministry of Defence housing project in Devonport and various school projects throughout the UK.

Since 1996, the firm has committed £374 million to 43 projects, which have reached financial completion or are at the preferred bidder stage. In total, the hospital, transport, education and accommodation projects amount to approximately £6.6 billion in capital value.

As well as its three primary funds (which generally take the early stage risk associated with bidding for and developing projects through to operating stage), Innisfree also manages one secondary fund as a joint venture with M&G Limited, a subsidiary of Prudential plc.

The secondary fund closed in 2002 on £150 million. Secondary funds tend to be long term holders of PFI and PPP projects, returning cash to investors once a project has reached its operating stage.

Under PFI and other similar arrangements, government agencies and other public sector institutions contract to purchase services from the private sector on a long-term basis, taking advantage of private sector operations and management skills whilst the private sector look to secure meaningful returns from their investment.