Filling the toolbox?

In relation to infrastructure, one often hears of the “need to build”, whether it be bridges, roads, airports or other vital assets required to grease the wheels of the economy. In the world of asset management, this translates to a different “need to build”: an infrastructure investment platform.

Lyons: fund of
funds ‘efficient
exposure’

“It’s one component of a modern investment toolbox,” says Damon Williams, head of institutional management at Global Asset Management at RBC, the Canadian financial services giant.?

And now, RBC officially has that tool in its box, which already included fixed income, multi-strategy hedge funds, derivatives and other investment strategies across $200 billion of assets under management. As first reported by InfrastructureInvestor.com, the firm has put together a team of four professionals to lead the charge in a new Infrastructure Investment Group. ?

The group, based in Boston, is staffed by Joe Lyons, Nancy Mangraviti, Matthew McPhee and Whit Porter, who all joined RBC Global Asset Management in December to build out a portfolio of fund of fund, co-investment and secondary investment strategies for unlisted infrastructure funds.??

Lyons, McPhee and Porter were founding principals of Macadam Asset Management, a firm they launched last year with the goal of creating a $300 million global infrastructure fund of funds, as previously reported by InfrastructureInvestor.?

Mangraviti, the fourth founding member, joined from Bank of America, where she was a legal counsel in the asset management group.?

In 2009, the Macadam trio was scouring the market in search of a business partner for their idea. ??Williams, meanwhile, was on the phone with his clients. “We’d been in discussions with them on how to come up with investment solutions that help them meet their obligations with a greater degree of certainty [and] without sacrificing returns,” he says.?

“Infrastructure, with its long-term cashflows, is an appealing asset class in that area,” he adds.??So when Lyons and team knocked on his door, he says, “our needs and timing happened to coincide”.??With burgeoning interest in the asset class, other firms have also been busy drawing up plans. The same day that RBC posted its official press release announcing the new Infrastructure Investment Group, Perella Weinberg Partners, the advisory shop founded by legendary investment banker Joe Perella, announced a joint venture with Atlanta, Georgia-based Infinity Capital Partners to invest up to $100 million in rail, trucking and other transportation-related assets.??

Arguably it’s not strictly an infrastructure play, but it does indicate the way most new entrants have fired their opening salvo in this asset class through direct investment. Why, then, go the fund-of-funds route??

“Intuitively, if you are a medium-to-small-size investor or a large investor that is looking to target a specific sector, there’s an argument is to be made [that] a fund of funds would be an efficient way to gain exposure [to the asset class],” says Lyons. ??

That’s because researching and evaluating the asset class requires dedicated professional staff, consultants and due diligence that could end up being more costly and time-consuming than hiring someone to take on the burden for you.??

Plus, says Williams, infrastructure is diversifying into more specialised strategies. It’s no longer filled with garden-variety infrastructure funds all investing in the same assets. Geographically-tailored and sector-specific funds are increasingly common. More diversity naturally presents an opportunity for more diversification which makes it “more appealing” to access the asset class via a fund of funds approach.?

Which is not to say that RBC would never go the direct route. RBC does not currently offer a direct private equity strategy. “In terms of deciding our priorities, infrastructure was a higher priority than private equity at this point,” says Williams. A direct infrastructure investment strategy, though, is not completely out of the question.??

Like the handyman who’s just made a new addition to his toolbox, Williams is going to put this one to good use before adding others.?