The II 30: What qualifies and what does not

WHAT IS INFRASTRUCTURE INVESTOR 30?

The Infrastructure Investor 30 is a ranking of the 30 largest infrastructure fund managers globally by size. The Infrastructure Investor 30 follows on the success of a similar ranking called the PEI 300, which ranked the largest 300 private equity firms. Both the Infrastructure Investor 30 and PEI 300 are produced by PEI Media, the publisher of Infrastructure Investor and Private Equity International magazines.

HOW WE DETERMINE THE RANKINGS

The Infrastructure Investor 30 ranking is based on the amount of capital raised by infrastructure direct investment programmes over a roughly five-year period. This year, the five-year window spans from 1 January 2008 until 1 June 2013.

Where two firms have formed the same amount of capital over this time period, the higher Infrastructure Investor 30 rank goes to the firm with the largest active pool of capital formed since 2008. If there is still a “tie” after taking into account size of single capital formation, we give greater weight to the firm that has formed the most capital within the past one or two years.

ACCURACY AND CONFIDENTIALITY

We give highest priority to information that we receive from the fund managers themselves. When the infrastructure fund managers themselves confirm details, we seek to “trust, but verify”.

Some details simply cannot be verified by us, and in these cases we defer to the honour system. In order to encourage cooperation from the industry, we do not disclose which firms have aided us on background and which have not. Lacking confirmation of details from the firms themselves, we seek to corroborate information using available annual reports, press releases, limited partner disclosures, etc.

DEFINITIONS

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. The 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 judgment based on applicability according to our definition.

Capital raised: This means capital definitively committed to an infrastructure direct investment programme. In the case of a fundraising, it means the fund has had a final or official interim close after 1 January 2008. We may count the full amount of a fund if it has a close after this date. And we may count the full amount of an interim close (a real one, not a “soft-circle”) that has occurred recently, even if no official announcement has been made. We also count capital raised through other means, such as co-investment vehicles, deal-by-deal co-investment capital, publicly traded vehicles, recycled capital, and earmarked annual contributions from a sponsoring entity.

What counts as capital raised ?

Limited partnerships: In most cases, infrastructure fund managers raise money through commitments to limited partnerships. In some cases, investment capital is raised in other ways, for example through contributions from an affiliated entity or through public offerings. In all these cases we seek to accurately determine how much investment capital has been created for the financial sponsor in question over the specified five-year period.

Co-investment vehicles: Where appropriate, we count LP co-investment vehicles into a fund manager’s capital fundraising total. The reason is that the co-investment vehicles are a reflection of a fund manager’s deal-making prowess and represent direct investment capital created for the asset class. However, the co-investment capital must be invested alongside a primary limited partnership, not established for a one-off deal or separate account.

Public entities: We count the capital raised by infrastructure fund managers that happen to be publicly traded. We also count capital raised in the format of public vehicles controlled by infrastructure fund managers so long as those public entities primarily invest directly in infrastructure projects, concessions or businesses. Where infrastructure capital is raised via public offerings, we count the amount of infrastructure capital invested within the defined five-year period. This should automatically take into account recycled capital.

Seed capital or GP commitment: We count as capital raised any seed capital committed to any fund raised by a firm.

Recycled capital: We seek to include the value of recycled capital within the five-year period if the recycled capital was earmarked for direct infrastructure investment.

Affiliated programmes: We count infrastructure capital raised by affiliated entities so long as the firm has control over those entities, or the vehicles raised bear the clear branding of the firm.

Contributions from sponsoring entities: Where a larger entity has earmarked capital to a firm for a dedicated, direct infrastructure investment programme, we count the amount of capital the firm has drawn down from that entity for infrastructure deals over the defined five-year period.

What DOES NOT count as infrastructure :

Funds of funds: We do not count funds of funds in our rankings. Credit for capital raised by funds of funds is reflected in fund managers’ direct capital raised, so to avoid double-counting, we exclude funds of funds.

Separate accounts: An asset manager cannot claim credit for a separate pool of capital being managed on behalf of a pension plan as it is not a blind pool of capital originated for private investment at the discretion of the manager.
Real asset strategies: Real assets such as timber, commodities, and natural resources cannot be counted toward the capital created total. While such strategies are similar to infrastructure in that they provide an investment in a physical, tangible asset or contain an element of inflation protection, they do not meet the core criteria of providing exposure to stable, predictable, long-term cash flow streams (timber demand, for example, is cyclical, as are commodities and natural resource-driven strategies like oil and gas exploration).

Real estate: We do not count capital deployed in property ownership strategies.
Club deals: Similar to our rationale for separately-managed accounts, in which capital is pledged to a sponsor but the end-investors have the discretion over whether to invest, we do not count club deals in our rankings.

Debt investment funds: Our rankings focus on equity committed to the asset class, so we exclude all debt-focused vehicles and commitments, including mezzanine debt.
Private equity: We do not count capital deployed primarily in private equity strategies (i.e. buyouts of operating businesses in various economic sectors). Infrastructure investors may of course invest in operating businesses, but the businesses must exhibit and be purchased primarily for their ability to produce stable, long-term cash flows.

Hedge funds: We do not count hedge fund strategies as these primarily rely on indirect investments such as listed securities that may have exposure to infrastructure assets, not the assets themselves.

What DOES NOT count as capital raised :

Expected capital commitments: No matter how confident you are about your eventual fundraising goals, we do not count “soft-” or “hard-circled” commitments – only official final and interim closes.

Opportunistic capital: An entity that has the ability to opportunistically do large infrastructure deals, but does not have a dedicated programme or team for doing so, will not be counted.

More questions? Contact Eduardo Roman at eduardo.r@peimedia.com, +1 646 619 8131