PKA eyes new commitments, GP relationships in 2011

PKA will look to make up to $300 million in commitments to new and existing infrastructure fund managers this year, according to a senior executive in charge of the Danish pension manager’s infrastructure portfolio.

“We continue to look for new funds,” Kasper Knudsen, PKA’s portfolio manager for infrastructure and private equity, said in an interview.

Since it launched its infrastructure investment programme in 2006, PKA has invested with eight infrastructure fund managers representing almost 3 percent of its total assets, Knudsen said. PKA has total assets of $25 billion.

Some of the funds he’s backed to date include Energy Capital Partners I, which closed on $2.25 billion in 2007, Macquarie European Infrastructure Fund II, which closed on €4.6 billion in 2007, Highstar Capital III, which closed on $3.5 billion in 2007, Tenaska Power Fund II, which closed on $2.4 billion in 2008, Morgan Stanley Infrastructure Partners, which closed on $4 billion in 2008 and, most recently, Antin Infrastructure Partners, which closed on €1.1 billion in 2010.

“We have a strong roster of managers,” Knudsen said of his existing portfolio.

Knudsen has already re-upped with a few of them, including Highstar, which received an additional commitment from PKA for its fourth fund targeting $3.5 billion, and Energy Capital Partners, which received a commitment from PKA for the second, $4.3 billion fund the firm closed in 2010.

But besides re-upping with existing GPs, Knudsen hopes to form new relationships in 2011, especially in areas not already covered by his existing roster of managers. “We also look at emerging markets and I would say there we don’t have dedicated managers yet,” Knudsen said, pointing to Asia as a region he is particularly interested in.

Knudsen said he’s open to various fund structures in his portfolio, though to date he’s only backed fund managers with closed-ended funds. Unlike an open-ended fund, which can take investor subscriptions and buy and sell assets indefinitely, a closed-ended fund has a finite-period in which to invest, typically two to four years, and a finite period in which to realise the value of its portfolio, typically 10-12 years.

“We evaluated a couple of open-ended funds and while we certainly find it an interesting model, the problem arises when you have the incentive structure: how to incentivise the investment team,” Knudsen said. He doesn’t see a good way to incentivise an open-ended team in a time period that matches limited partners’ long-term investment horizon.

With a closed-ended fund, “you certainly have the same timeline in interest”, Knudsen says. “When the timeline’s up, you tally up the returns and split, hopefully, the profits”.

“We’re quite focused on alignment of interest,” he added.