Return to search

Outlook 2017: The great rollover

Funds raised in the 2000s are reaching the end of their lives, but not every LP wants its money back. In 2017, innovative structures will continue to be created to keep the remainers on board.

For LPs, investing in infrastructure is a bit like the curse of Sisyphus. Investors have a mission: roll your asset boulder up the hill of liabilities, so that the money you get each month matches what you have to pay your policyholders. One way to do that is to sign a big cheque to a blue-chip fund manager, who will go through the trouble of finding assets for you. The problem, if you follow this route, is that every 10 years or so your boulder goes down the hill – and more often than not, it is bigger than before. And then you have to do it all over again.

This year has given us the opportunity to see different ways to deal with this conundrum. For sure, there's been a fair share of old-school exits. Take Global Infrastructure Partners, which sold London City Airport in February to a Canadian-led consortium for about £2 billion ($2.4 billion; €2.3 billion). Or Antin Infrastructure Partners, which divested crematorium business Westerleigh to USS and OTPP in November, followed by telecoms group FPS to American Tower and PGGM this month. Actis even managed to squeeze the sale of its remaining stake in Ugandan utility Umeme three days before Christmas.

Yet selling assets one by one is not always seen by GPs as the most efficient use of time; fund managers or direct investors that are next down this “pass-the-parcel” chain tend to agree.

And so various attempts have been made recently to roll over assets held in a fund into a new vehicle. There are obvious advantages to this. It can take years – indeed, up to a decade – for a fund manager to aggregate assets, build them up and de-risk them, which is one reason why many LPs would rather avoid getting involved with the nitty-gritty of putting together a portfolio themselves. But a pool of assets that already has all these characteristics and that is instantly up for grabs is bound to be very attractive, and attract rather high prices.

That's part of the rationale that prompted Dutch fund manager DIF, as long ago as 2014, to sell the whole of its debut fund to Aberdeen Asset Management, which took on the portfolio on behalf of APG. The firm probably liked how that panned out, because it has since explored options to divest its second fund in a similar, wholesale fashion, it emerged in late 2015 .

But this year it's another blue-chip European firm that has come to embrace the idea: Ardian, which as Infrastructure Investor reported in September , had started a competitive process to divest its entire Fund II. Sources we spoke to then attributed Ardian's decision to diverging interests among limited partners, some of which need to liquidate investments before a given time horizon while others would rather hold on to the assets for a longer period.

Such a choice will also be given to current investors exposed to assets held in the €1.1 billion EISER Global Infrastructure Fund, some of which are set to be bought by 3i next year via a £700 million vehicle newly established by the London-listed firm . The vehicle has received a £36 million capital injection from 3i itself, with commitments also coming from ATP and APG. The pool to be purchased includes Belfast City Airport, East Surrey Pipelines, a stake in waste treatment business Herambiente and holdings in four concession companies in Spain.

Sound clever? Investors we spoke to certainly think it is. As other funds raised in the 2000s grow older, such forms of rollovers may enter a golden age.