A further €2.3 billion was raised in this round – slightly less than the €2.5 billion raised for Series 1 – bringing the total commitments to the fund to €4.8 billion. Alongside it, there is an additional €7.8 billion in fee-generating co-investment capital, bringing the total raised by the strategy since inception to €12.6 billion.
The Super Core fund – classified as Article 8 under the EU’s Sustainable Finance Disclosure Regulation regime – is by now nearly fully committed across seven western European investments, mostly in gas and electricity distribution.
“Across both series, we’ve put in about €750 million to €1 billion of equity in each asset. In the future, I can see that getting bigger,” Martin Bradley, MAM’s head of EMEA, real assets, tells Infrastructure Investor.
The vehicle’s focus on highly regulated infrastructure was borne out of the low interest-rate environment in 2016-17. “Back in 2016, we saw a world which had quite low interest rates and there was a lot of quantitative easing. It occurred to us that inflation would be part of the future risk environment. So, we focused on utilities and decided to be dominant in that asset class,” Bradley says.
He argues that the fund’s focus on the acquisition of connections rather than production facilities is a clear differentiator from its competitors.
“When we looked at the growth of renewables back in 2016, it was clear to us someone would need to build the connections so all this capacity could get used,” Bradley explains, offering Greece, where the fund owns the operator of the national electricity distribution network, as an example: “Greece has one of the best footprints for renewable power, both wind and solar. So part of our investment case, which has only been accelerated by what’s happening in Ukraine, is to provide connections from those renewable sources on the Greek mainland to the islands. In doing so, we’re expanding the grid and bringing down the actual cost of energy for households. We are also improving network reliability, as well as going green. It’s the perfect trinity of ambition.”
Utilities a ‘safe bet’
The past months have seen regulatory interference in electricity and gas markets across Europe, both for retail and wholesale participants. This has increased risk, but the Super Core offering remains largely insulated, according to Bradley. “The biggest risk in these assets is regulatory change but, in a diversified, pan-European portfolio, utilities are as safe a bet as they come in the infrastructure market. And it’s unique. I don’t think anyone else will be able to build a portfolio like this for two reasons: one is that we had a head start; and two, it’s a lot harder to bid for these assets now that they have a 7 percent inflationary growth profile. When we were buying them, we were buying assets with a 2 percent inflationary growth profile.”
In addition to Greece’s Hellenic Electricity Distribution Network Operator, the fund owns Elenia, Finland’s second-largest electricity distribution network operator; Viesgo, a Spanish utility and electricity distribution network; and Thyssengas, Germany’s third-largest gas transmission operator. It also owns several critical assets in the UK including Cadent, the country’s largest gas distributor; National Grid’s gas transmission and metering business; and water and wastewater utility Southern Water.
The Super Core fund’s targeted return is around 5 percent, with caveats for the early years. “We’ve just taken on a few assets, so the dividend comes later but the capital arrives today. So, your first year always sees that dip as the NAV [net asset value] denominator and the numerator adjust,” says Bradley.
Looking to the future, there are no immediate plans to add another fundraising series to the fund, which has a 20-year lifespan that can be extended by five-year increments, provided a majority of LPs agree.
“We’ve got a bit of money left over, but we’ve got intentions for that,” says Bradley. “We’ll consolidate what we’ve got and watch the market, and come out again when we think it’s the right time.”