Sydney-based Macquarie Group, the largest private owner and operator of infrastructure assets globally, has begun raising two funds of funds for the infrastructure asset class, according to market sources familiar with the fundraising effort.
The two funds, Macquarie Infrastructure Fund of Funds I and Macquarie Opportunistic Infrastructure Fund of Funds I, each have a target of $1 billion and are structured to give investors exposures to different strategies within the asset class.
Macquarie Infrastructure Fund of Funds I will follow a “balanced” strategy, defined as investments that are weighted 66 percent toward core infrastructure investments and 34 percent toward opportunistic investments. The Macquarie Opportunistic Fund of Funds I would have a 100 percent allocation to opportunistic investments.
Core investments are being defined as those that produce a net internal rate of return of at least 9 percent, while opportunistic investments are those that produce a net internal rate of return of at least 15 percent.
Both funds feature a co-investment strategy to invest alongside managers in the assets they acquire for their funds. The co-investments would be targeted at 50 percent of their commitments in those funds.
Co-investment schemes are frequently used to lower the fee-basis for limited partners in infrastructure funds. The issue is of particular importance for the fund-of-funds space, which is often criticised for adding another layer of fees onto an already lower-yielding asset class.
The funds would not charge fund-of-fund fees for investments made in any other Macquarie-managed infrastructure funds. These include the New York-based Macquarie Infrastructure Partners, which had $5.5 billion in investor commitments as of 24 April, according to a press release, or the Macquarie European Infrastructure Fund, which is in fundraising stage and has raised €1 billion to date, according to its website.
However, the funds would be subject to concentration limits on any one manager and investments would have to be subject to approval by an advisory board which would have representation from the funds’ limited partners.
The funds would also look at potentially acquiring stakes in infrastructure funds that are being sold by existing investors who wish to exit their position.
The funds are being raised by a team of infrastructure professionals within the Macquarie Funds Group, a group created last year to house Macquarie’s funds and funds-based structured product businesses under one roof. That division, which is separate from Macquarie Capital Funds, was created in June 2008 and is headed by Shemara Wikramanayake, formerly the head of Macquarie Capital Funds in North America.
Speaking at PEI Media’s Infrastructure Investor: New York forum last week, Johnston declined to comment on the funds or any aspect of his fundraising effort.
However, speaking on a panel about trends in limited partner appetites at the forum, Johnston gave some indication of his general investment approach.
“Our approach is radically different from the way people assess a managers’ capability . . . our view in terms of how to make money and create value and change value in infrastructure assets is to focus on risk,” he said.
Johnston said risk mitigation is important because managers for many kinds of infrastructure assets cannot control external risk factors such as traffic on a toll road. So they must focus on mitigating these risks’ impacts on their investments.
“We’re interested ultimately in managers that are looking to change the risk profile of assets. Something is more volatile before, becomes less volatile tomorrow. It’s the most reliable way to produce value in the infrastructure sector,” Johnston added.