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Inside Desjardins’ first infra fund

Frédéric Angers, Desjardins’ director of infrastructure investments, delves into fundraising, investment strategies and why the firm chose infrastructure for its first alternative asset class fund.

Canadian financial services group Desjardins is the newest player on the North American infrastructure scene. Last month, it announced the launch of both its first infrastructure fund and first alternative assets fund – the DGAM Global Private Infrastructure Fund.

Frédéric Angers, Desjardins’ director of infrastructure investments, stated that the choice to get into alternative assets, specifically within the infrastructure space, was a calculated one.

“We’re targeting to be one of the top 10 asset managers in Canada, so we need alternatives to offer to our clients. We have an internal expertise in infrastructure and first and foremost, we’re a fixed income shop, so it’s natural; infrastructure is closer to what we do than, say, private equity,” he told Infrastructure Investor.

Though the fund is a maiden attempt in the asset class for the firm, Angers insists that the strategies utilised will be a continuation of those he implemented during his 19 years working at Desjardins’ pension fund.

“That strategy was to invest into some funds, maybe for a quarter to a third of the asset base, and then leverage those fund relationships to source co-investment,” Angers stated. “We [also] had a direct approach [to co-investment] as well. For DGAM, it will be in a similar fashion.”

Desjardins’ infrastructure fund is open-ended and is co-invested in by other subsidiaries of the Desjardins group. When asked why Desjardins chose an open-ended strategy, Angers replied that he believes it works well for infrastructure investment.

“With our pension funds, we’re on the buy-side rather than the sell-side, and we like open-ended funds because of the long-term nature of the infrastructure asset class, so we are very comfortable with an open-ended structure and the people we talk to tend to like it as well, at least in Canada.”

Angers expects nearly 50 percent of the initial C$600 million ($477.5 million; €420.1 million) “soft” short-term target to come from Desjardins-related entities. External co-investors will play less of an important role, with Angers stating: “We structured the vehicle in order to welcome external, existing and potential new clients. I think the investors that we would be targeting would probably not be the biggest co-investors. The article provides for potential co-investment, but I’m not sure it is something that would be really thought of.”

With this capital, Desjardins hopes to start off by investing in mid-market assets ranging from C$35 million to C$50 million, though Angers anticipates that the fund could take larger equity positions as it grows. The sectors targeted will be a continuation of the infrastructure sectors other Desjardins funds are currently invested in, which are diversified albeit with a leaning towards renewables.

At the moment, the entirety of Desjardins’ pension funds and insurance companies – with C$3 billion AUM – has about 40 percent of its investments in renewables. Thus, due to existing expertise and networks at the firm, Angers expects a similar representation for DGAM in renewables, with the fund’s article providing for a maximum of 50 percent of its portfolio to be based in one sector.

‘We’ll try not to be PE-style’

While the fund will initially only be open to Canadian investors, it will act globally. While there is a legal minimum requirement for a majority of fund capital to be deployed in North America, Angers still expects the fund to incorporate investments from OECD countries across both Europe and Asia.

The fund has no official targeted IRR, but Angers stated that the assets the fund is currently looking at should see returns in the high single digits – 7 percent to 9 percent.

“This high single digit is saying that we won’t do a low double-digit asset and that we’ll try not to be private equity-style infrastructure investors, just because of where we’re from. Historically we’ve invested large amounts for pension funds in a very disciplined fashion.”

Angers added: “With this fund, Desjardins is saying to the market: ‘Infrastructure investing is what we’ve done for the last 14 years. If you want to work with us, we have the capacity to welcome you alongside what we will be doing for the next 14 years’.”

The first close for investors interested in the fund was in December, but Desjardins has plans to source more capital before 31 March and combine it with the existing first close.