Breaking up is easy to do

A few of the reasons why 2009 will prove memorable: tough fundraising, deal blow-ups, the first availability payment-based deals in the US and the continuing decline of the sponsored fund.

Last month, as Infrastructure Investor was  going to press, we got word that the last of these trends had produced another example. The management team of the €1.1 billion ABN AMRO Global Infrastructure Fund had reached an agreement with Fortis Investments to proceed with a management buyout.

The London-based fund is the owner of Belfast City Airport, which it acquired in an auction in September 2008 for £132.5 million. At the time, the fund’s chief financial officer, Hafeez Ahmed, told us the fund was almost fully invested. Months later, a second, €2 billion fund was understood to be at the planning stage.

It is not entirely clear why Fortis and the fund have decided to part ways, but some insight is provided by the impact of the financial crisis. 

Before the meltdown, it was common for large financial institutions to provide funds with seed capital as well as access to clients and relationships to aid in fundraising and deal-making efforts. The result was the rise of the “sponsored” fund, tied to a financial institution such as a large global investment bank.

One European example of this trend was ABN AMRO. Veteran executive Hans Meissner, who joined the bank in 1996 as a corporate managing director in London, was able to elicit support for a global infrastructure fund, which he founded in 2004.

But in the aftermath of the credit meltdown, the perceived benefits of such sponsorship weakened considerably. Many sponsors were forced to take billions in write-downs related to the sub-prime meltdown, depleting their capital available for seeding funds.

Fortis was a case in point. The bank was sold to France’s BNP Paribas in a sale brokered by the Belgian and Luxembourg governments after it suffered massive sub-prime-linked write-downs. That deal came just months after Fortis acquired a portion of Dutch bank ABN AMRO in a three-way carve-upl with RBS and Santander, which closed in October 2007. As part of the deal, ABN AMRO’s asset management unit – including ABN AMRO Global Infrastructure Fund – became part of Fortis Investments, the asset management arm of Fortis.

The spinout at Fortis is only the latest in a series of similar moves. Babcock & Brown’s troubles led to a flurry of fund detachments, including the $1.9 billion SteelRiver Infrastructure Partners and the €2.2 billion Arcus European Infrastructure Fund – formerly Babcock & Brown Infrastructure Fund North America and Babcock & Brown European Infrastructure Fund – respectively. And Macquarie has let go of several of its listed funds, including the Macquarie Communications Infrastructure Group and Macquarie Airports.

Tastes change and trends reverse. But 2009 may be seen as the year of the sponsored fund spin-out.