The II 30: What qualifies and what does not

When we set out to create the Infrastructure Investor 30 ranking two years ago, we wanted it to be truly representative of the asset class.

Hence, we made our job more complex than it might have been by holding the door open for possible inclusion to the likes of pension funds, developers and sovereign wealth funds as well as just general partners (GPs). Not all these groups commit to the asset class in quite the same way, so it means we have had to be careful in making sure that we arrived at an appropriate methodology for each of them.

We also wanted the ranking to reflect investment in infrastructure. This sounds obvious, but infrastructure has characteristics that overlap with other asset classes and the definition of infrastructure – as has been well documented in these pages – is very much open to discussion. We wanted to ensure that the overlap with private equity and other investment areas was limited as much as possible.

We were also keen to ensure that our measurement of size would take into account a firm’s heft going forward as well as that indicated by the scope of its past fundraising successes.

In the end we believe that we can indeed boast a proprietary methodology that encompasses all of these considerations.

Below, we set out exactly how we draw up our ranking.

The methodology

Rankings are based on the answer to the question “How much infrastructure direct-investment capital has your firm formed since 1 January 2007?” and counts:

1. equity capital raised by infrastructure funds;

2. infrastructure fund commitments and direct capital invested in infrastructure assets by pension plans;

3. equity capital invested in infrastructure projects and concessions by infrastructure developers.

All of the above count toward the rankings if they were made between 1 January 2007 and 30 April 2012 (inclusive), the cut-off date before the June 2012 issue of Infrastructure Investor magazine went to press.

Below are the rules and definitions used to create the Infrastructure Investor 30 ranking.

What is the Infrastructure Investor 30?
The Infrastructure Investor 30 is a ranking of the 30 largest infrastructure investors globally by size. It follows on the success of sister magazine Private Equity International’s similar ranking called the PEI 300, which ranks the largest 300 private equity firms.

How we determine the rankings
In coming up with our “II 30 Five-Year Capital Created Total,” upon which the Infrastructure Investor 30 rankings are based, we rank the most accurate figure available from each investor in answer to the question – “How much infrastructure direct-investment capital has your firm formed since 1 January 2007?” – defined as follows:

• “Infrastructure”: The definition of infrastructure investing, for the purposes of the Infrastructure Investor 30, means committing equity capital toward tangible, physical assets, whether existing (brownfield) or development-phase (greenfield) that are expected to exhibit stable, predictable cash flows over a long-term investment horizon. Investors need not seek to own the assets in perpetuity and may exit them, realising a capital gain and generating an internal rate of return for themselves or their end-investors. However, they must primarily dedicate their investment programmes toward the pursuit of assets and projects that exhibit cash flow stability and predictability and cannot be counted if they’ve made large one-off investments in the asset class on an opportunistic basis. There will certainly be grey areas with regard to these parameters, but Infrastructure Investor will take pains to ensure that the capital counted for the purposes of the ranking will fall within our definition of infrastructure to the furthest extent possible.

Below is an extract from our definition of the “new infrastructure” (which can be found on the last inside page of all issues of Infrastructure Investor):

“Infrastructure is the term that covers the man-made facilities that enable any economy to operate. It can be segmented further into three broad types: transportation (e.g., railways, roads and airports), utilities (e.g., energy generation and distribution, water and waste processing and telecommunications)
and social infrastructure (e.g., schools, hospitals and state housing)…”

You will see that the emphasis is on the assets themselves rather than on associated services and technology. In our five year total, only capital allocated to infrastructure is included, as defined above.

Where the investments are made in what may be termed a “grey area” between infrastructure and private equity, we reserve the right to make the final judgement based on applicability according to our definition.

• “Direct-investment capital”: We recognise that different players in the asset class will deploy capital in different ways. The end goal, though, is the same: capital flows from investors into infrastructure assets, whether it’s a concession backed by a developer, an infrastructure business bought by a fund manager or a utility jointly purchased by a group of pensions and infrastructure funds. So we define direct-investment capital as:

• Equity raised by infrastructure fund managers, whether listed (via IPO or follow-on offering) or unlisted (private placement);

• Equity committed to infrastructure funds by pensions or directly invested in infrastructure by the pensions themselves;

• Equity invested in infrastructure concessions or projects by infrastructure developers.

• “Formed”: This means that the equity capital was definitively committed to an infrastructure fund or directly invested in an infrastructure project, concession or business between 1 January 2007 and 30 April 2012. By “definitively committed”, we mean that the fund commitment has been signed (not a soft circle commitment) or that the direct investment has reached financial close, not that it has been agreed to or reached commercial close.

Who counts as an infrastructure investor?
Our rankings focus on three primary sources of equity capital for infrastructure investing: pension plans, private investment funds and infrastructure developers, defined as follows:

1) Pension plans: Over the last two decades, many pension plans, primarily in Canada and Australia, have developed the in-house expertise to make direct investments in infrastructure assets. Many others have carved out infrastructure investment allocations that may include direct or indirect investments. For the purposes of our rankings, a pension plan counts as an infrastructure investor if it has allocated capital to listed and unlisted infrastructure funds and/or deployed capital directly in infrastructure assets on its own (not including related real asset strategies).

2) Private investment funds: Limited partnerships, pooled investment vehicles and other investment structures that raise capital from outside parties for the purposes of investing capital in infrastructure count as infrastructure investors.

Committed capital such funds have attracted in the last five years count as infrastructure investors. Listed investment vehicles, such as externally-managed funds that raise capital on a stock exchange and then use that capital to make infrastructure acquisitions, also count as infrastructure investors.

Only capital raised in an IPO or in a follow-on offering will count toward a listed fund’s ranking. Where one investor manages both listed and unlisted infrastructure funds, it is ok to combine the two into the firm’s total five-year capital created figure.

3) Infrastructure developers: Companies, whether privately held or listed, that actively invest their balance sheet capital in infrastructure projects via government-sponsored infrastructure investment initiatives such as the UK’s Private Finance Initiative (PFI) scheme, count as infrastructure investors. As
many companies that participate in these types of projects are global conglomerates with various subsidiaries and investment arms, only capital deployed toward infrastructure, as defined above, count toward the ranking. For example, equity capital committed toward PFI concessions over the last five
years would count, whereas the acquisition of a subsidiary construction company would not.