In medio stat virtus (it’s best in the middle)

Vincent Levita, president of French infrastructure fund manager OFI InfraVia, is unquestionably a bit of a history buff. After all, in a recent article he co-authored for France’s illustrious Le Monde newspaper, Levita traces the history of his country’s first infrastructure public-private partnership (PPP) all the way back to the court of Louis XIV, in the 17th century.

So we are sure he won’t mind the use of the old Latin maxim in the headline – which could be roughly translated as ‘virtue stands in the middle’ – to best describe what InfraVia is all about. Put simply, InfraVia has found, if not its virtue, then at least its sweet spot targeting the European mid-cap infrastructure market. And now it’s back for more, with a new €400 million infrastructure fund.

“We put in place a strategy in 2008 which consisted of investing in diversified, mid-cap, core infrastructure assets. At the time, in 2008 to 2009, we ended up with a smaller fund than we had hoped for, probably due to the time period. But in the end we managed our strategy quite well. We did what we set out to do and our investors are quite happy with us and want some more,” explains Levita.

More demand

“We plan to keep the same focus on the mid-market and on core infrastructure and we can do that with €400 million to €500 million,” chips in Bruno Candès, the founder of Canadian fund manager Fiera Axium who Levita poached to serve as an investment director with InfraVia. “There is more demand now than there was in 2009, evidently, so we believe this is a good opportunity to replicate on a larger scale what we have been doing for the last few years,” he adds.

It’s also a good opportunity for InfraVia to flex its muscles and diversify geographically. Fund I – which raised just under €200 million and finished investing recently – has only two of its 11 assets located outside of France. Not that Levita shies away from InfraVia’s ‘Frenchness’:

“We’ve built Fund I on the basis that it would be a European fund with a French bias. We did this for many reasons: firstly, because we have French roots and, of course, better origination [capability] in France; secondly, France has been a very active market over the last four years. Today, the natural step is for us to extend our franchise to a European level.”

“Again, it speaks to our strategy,” elaborates Candès. “I believe we’ve been able to establish with Fund I that most of our deal flow comes from industrials that have assets on their books to be disposed to long-term investors. I think this trend is going to continue and our partners are true global players.”

“Thus if you have a relationship with a French EPC contractor or a German turbine manufacturer, then you can do a deal with them in Germany, the Netherlands, or in the UK. And that’s in our DNA as a mid-cap fund: we are basically following our industrial partners in these opportunities. That allows us to expand beyond our borders,” he concludes.

Mid-cap – got it?

Mid-cap, mid-cap, mid-cap: by this point you must be wondering what’s so great about the mid-cap space when compared to, say, large cap? Its advantages, according to InfraVia, are threefold: less competition, a better entry price and more manageable risk.

“We are seeing the development of the infrastructure asset class with large global funds and large investors going direct, which is making the large-cap space very competitive. Of course, there are other funds operating in our space. There are three or four people with the same vision as us, but the competition doesn’t drive us to places where we don’t want to go – which nowadays is our concern with large cap,” explains Levita.

He adds: “I think it’s also fair to say that origination at the mid-cap level demands more work, as you have to extract deals that are not in the public space. But once you are able to do that, you can tailor the deals more or less the way you want.”

“For one, we are not pressured on the entry price and we are in a better position to monitor risk,” Candès argues. “When you have a mid-cap deal, it’s usually backed by a smaller club of banks. If you only have two or three banks in a club deal it makes it easier when you have to refinance an asset a few years down the line.”

When it comes to sectors, InfraVia is still very bullish on European transportation. “Transportation is quite active in terms of brownfield. A lot of deals were done five or 10 years ago by strategics which will now need to recycle their equity, so this is a key market that we think is going to last,” argues Levita.

“A second market is renewable energy, which certainly was a key market for us in Fund I. Today, it’s slowing down a bit for a few reasons: consolidation isn’t happening, the regulation isn’t stable, so the sector today is slower. In my opinion, it will come back quite soon, but not over the next few months.”

“Telecommunications is certainly a new sector and the reason for that is that communications infrastructure was traditionally bundled with operators, because it was strategic for them. Now, there is room for unbundling, which creates a new area of business.”

Levita is talking from experience. As the New Year dawned, InfraVia announced its first deal in the space – the acquisition of a 55 percent stake in French fibre optic operator ADTiM – which, coincidentally, was also the last deal done out of its first infrastructure fund.

Both Levita and Candès are quick to underline that, while telecoms might be a new sector, deals, if properly structured, are very much like regular infrastructure transactions.

‘Real asset risk’

“What we want is to take real asset risk,” Levita says. “We don’t want to invest in a company which relies on a growth story; we want to invest in an asset that relies on demonstrated demand. For me, that’s the name of the game. Following that, we do not want to take risks we cannot measure, control, or assess – typically legal and regulatory risk. Then our job is to control financial risk by putting in place the appropriate structure and demand risk by assessing the assets well.”

In the end, Candès offers a candid summary of InfraVia’s overall strategy:

“I don’t think we are reinventing the wheel here. We think infrastructure has weathered the crisis pretty well and proven its resilience. I think what we are now seeing in infrastructure is what we have seen previously in private equity and other asset classes: infrastructure is getting more segmented. Different investors have different objectives and with that comes new strategies – we think it’s a natural trend as the asset class matures.”

He continues: “There are some investors that want a lot of geographic and currency diversification and this pushes them towards more global, large-cap funds; others want niche projects in renewable energy or PFI [the UK’s Private Finance Initiative]; and then you have other people like us that are focusing on the mid-cap.”