The fund is set to provide investors access primarily to core regulated assets which “many investors have not been able to access for the past few years”, Leigh Harrison, head of MIRA in Europe, told Infrastructure Investor.
“The sheer size of these transactions means that you typically need to be a very large investor in order to buy these assets,” he explained. “So, this fund is really designed in order to provide access to these high-quality, core regulated utilities to our investor base. It was an investor-led strategy.”
The €2.5 billion fundraising is set to be the first in a series of three, with each expected to be of around an equal size. Harrison said the next fundraising will be launched either at the end of this year or the beginning of next, after the fund has secured its third asset. The Super Core fund was seeded with Macquarie’s investment in UK gas distribution group Cadent Gas and it added Finnish electricity distribution company Elenia in December last year. A minimum of nine assets are expected to be held across the series of fundraisings once completed.
Harrison described the strategy as “a gap in the market”, which it began thinking about towards the end of 2015 and set an initial target of €1.5 billion.
“These core regulated utility assets are often very large cheque sizes and, therefore, to be meaningful in a single asset you often need €500 million or more and that’s why €1.5 billion was chosen as the minimum initial fund size,” he added.
The vehicle is designed to target lower returns than MIRA’s European vehicles, of about 7 percent to 8 percent net with a 5 percent cash yield. It has a 20-year term and can be extended in five-year increments, provided a majority of LPs agree. Management fees amount to 50 basis points on uninvested capital and are capped at 65 basis points on the fund’s net asset value. There’s also a performance fee of 20 percent of the vehicle’s yield over a 4 percent yield hurdle per year.
“The market is more mature and so investors themselves became more sophisticated and are looking for more choice,” said Harrison. “This has been very well received from investors because it gives them the opportunity for a very targeted type of exposure into stable regulated assets.
“The target return for our traditional European diversified infrastructure fund is 10 to 12 percent net. However, the target return for the typical asset for this fund trades well below that level and is therefore no longer suitable for the European diversified infrastructure fund strategy. That fund is looking at more complex situations or different geographies such as central and southern Europe, whereas these are core regulated assets in Western Europe.”
He added that there is limited room to also invest in Canada, the US and Australia. Harrison explained that first-time investors in infrastructure and real assets are looking for lower-risk funds and brushed off concerns relating to regulatory risk in Europe.
“There should be a fair return for fair investment and good service to your customers,” Harrison said. “This means it’s a fair return without being excessive and when you understand the regulatory environment in that context and you understand that customer bills and quality of service are important, it puts the regulatory risk into perspective. That is something we happily accept.”