A place to call home

A short stroll from Piccadilly’s historic Burlington Arcade, the new London office of fund manager iCON Infrastructure (iCON) has that unmistakable freshly-laid carpet aroma. There are other giveaway indicators of newness, including the neatly laid-out rows of cups and saucers in the boardroom and the perfect alignment of chairs. It will take a while before it has anything resembling a “lived in” look.

Daniel Agostino, a senior member of the iCON team, is pleased with the Cork Street HQ and pauses as we pass the firm’s shiny nameplate on the wall. “We have immense pride in the nameplate,” he reflects. At the serviced office the firm recently vacated, there was no nameplate and hence no sense of permanence. Now, the presence of one is a symbol of confidence in iCON’s long-term future.

iCON, a mid-market manager, is beginning to hone its plans for launching fund number three around the middle of next year (more of which later). But for a firm excited by the future, there is also a lot of history to look back on.

Ushered into the aforementioned boardroom, it’s not long before I find myself sitting opposite Paul Malan, senior partner of the firm and chairman of the investment committee. He is recalling the beginning of the story, reflecting on the first time he began to appreciate the scale of the opportunity in Europe when he ventured to London from Melbourne in 1997/98 at the time his then-employer Macquarie Bank was beginning to establish its European infrastructure business.


The story proceeds through the launch of the bank’s European utilities advisory business in 2001/02 and then the establishment of the unlisted Macquarie European Infrastructure Fund I, in which Malan played an instrumental role and began to appreciate that the size of the opportunity did not necessarily guarantee an easy fundraising.

“For two years I spoke to European and North American investors about European infrastructure when it was a new phenomenon,” says Malan. “It was hard going. In the end, it was the early adopters in Canada that supported that business. We focused on the most compelling sectors, such as UK water, which ticked the boxes for liability-driven investors but had not been the subject of significant private investment.”

It wasn’t long though before the infrastructure message began to be heard in the institutional community and large organisations started to ponder how they might take advantage. Among them was Deutsche Bank, which wanted to set up an infrastructure investment business. Malan was recruited to take the reins in 2004, staying within the Deutsche Bank fold until the spinout that formed iCON in 2011.
Also clustered around the table with Malan are Agostino, Iain Macleod and Deryk King – accounting for four of the five members of the firm’s investment committee (only Andrew Simon is absent).

Agostino was a project finance lawyer at Freshfields who, having initially joined Malan’s team on a secondment in 2005, has stayed with it ever since.

Macleod was a longstanding investment banker, who spent 11 years on the advisory side at Deutsche Bank and was head of transport and infrastructure in London. He joined iCON as recently as 2012. “I knew Paul very well and we had worked together for seven years on various things,” he points out.

King is the self-described “old man of the team” with a background in industry. Having run chemicals businesses, he switched to the energy sector at PowerGen and then Centrica. Having spent nine years developing Centrica’s activities in Canada, he retired from the firm five years ago. Waiting in the wings was iCON, looking to add some operational heft to its ranks. He guided the firm through its spinout as chairman and is “here to be leant on”, he says.


Of course, a very big part of the team’s history came around midway through 2011 with the spinout from Deutsche Bank. At the time, the team had accumulated around $500 million worth of infrastructure investments and were making decent progress with a fundraising (which is now referred to as iCON II). At a time of regulatory concern for the banks, the spinout made sense. But how did iCON go about the task of communicating the transition to investors?

“In advance of the spinout, we spent a year talking to investors about providing funds to continue growing our business. The recurring messages were that alignment of the team with investors – along with team control of the business – was fundamental to securing support,” recalls Malan. “Full independence was logically the best way of satisfying these requirements but it was only part of the equation. We were fortunate that we already had the essential building blocks. The challenge was convincing investors that, outside the Deutsche Bank umbrella, we could still do what we had been doing.”

He expands on this by saying: “In Deutsche Bank we had good processes so, when it came to having an independent business, we knew exactly what standards were required. But on day one, you don’t have thousands of people around you so you have to work hard to replicate that capability and thereby secure confidence. Institutions want to preserve and grow their capital while managing risk, and backing new or changing businesses always involves some element of risk.”

“They [investors] wanted to know we could deliver new deals in the way we had in the past,” adds Macleod. “They were saying ‘we can see you have a track record but we want to know you can replicate it’.”

It’s easy to say with the benefit of hindsight, but in the event they needn’t have worried. iCON II, more than twice the size of the €231 million first fund, ended up reaching €466 million in early 2013. Strikingly, the fund achieved a 95 percent investor re-up rate from the previous vehicle.


If you can detect confidence and ambition in the name the team selected for the independent business, you would not be wrong. Asked about the iCON moniker, Agostino replies: “Our goal is to be the leading European mid-market infrastructure fund manager. We set very demanding and exacting standards, and the iCON name encapsulates our aspiration and approach.”

Reach for a dictionary and you will find different definitions of the word “icon”. There is the religious work of art which inspires veneration from worshippers. If the team imagined themselves from the outset as being worthy of veneration, that would imply a level of bullishness rarely (though it may be inaccurate to say ‘never’) rivalled in the financial investment world. It seems more likely that they were thinking of the rather less elevated version that might refer to a sporting or musical icon – an outstanding (even legendary) performer in a particular field.

Either way, there is no shortage of would-be iCONs lining up to help the firm meet its goals. In the last year alone the firm has brought on board eight new additions, boosting the total size of the team to 19. These include six new executive team members such as former GE executives Martin Parkes and Gary Eade as well as Reiner Schrankler from Hochtief Concessions to head up a new Germany office in Düsseldorf.

“We do ask ourselves how we did everything with the number of people we had,” says King, who was involved with a number of the hires. “The core team has been together for a number of years and it needed to be grown, enhanced and broadened. We’re now right-sized for the foreseeable future.”

Asked what kinds of qualities the firm was looking for from its recruitment spree, Macleod says: “Junior resource is essentially about horsepower. At the senior level, we were looking to build our experience in sectors such as renewable energy and utilities and more generally in industry and operations.”

As alluded to earlier, the hires were also about positioning the firm ahead of its next fundraising – iCON III – which is expected to launch around the middle of next year. Macleod says the firm wants the fund size to be “appropriate to execute our strategy” but envisages a manageable step-up in size to somewhere around €700 million to €750 million.


So, having found a physical home, where in terms of market opportunity does iCON feel most at home? The mid-market is part of the answer. Macleod says the firm also seeks proprietary deals (or deals with a competitive element where the firm has a special angle of some kind) and investments where it can take the lead rather than being a junior partner. Four of the five investments so far made from the second fund have been in Europe, with one in the US (see table p. 29). The fund is now around two-thirds committed.

In terms of what iCON sees as its distinguishing features, the team members point to such things as: “very thorough” risk assessment (“we examine multiple downside cases with capital security critical”); “very active” asset management; playing an active role in re-financings (for example, three re-financings of UK train leasing company Porterbrook in the space of just six years); growing companies through bolt-on acquisitions; and a “strong exit focus” (evidenced by realisations such as UK utility Sutton & East Surrey Water, sold to Sumitomo Corporation in February 2013, and Spanish pipeline network and storage business CLH, sold to a group of institutional investors in May this year).

Malan is asked how the iCON approach is shown when it comes to new deals, and how it goes about achieving the ‘angles’ referred to earlier. He reaches for the example of Oslofjord Varme, a Norwegian district heating and cooling provider. The firm was identified as high quality: it had three long-term concessions, it was regulated, and its use of sea water as fuel meant fuel risk and maintenance costs were low.

However, the business was being sold alongside various other assets, including an electricity distribution grid, by parent company Fortum in a competitive process.
Agostino says iCON identified the most logical buyer of the electricity network and related assets (Norwegian power company Hafslund) and “saw the opportunity to position ourselves alongside that buyer”. Having pointed to existing relationships with other power companies such as BG and Centrica, iCON was able to gain Hafslund’s confidence and the two parties teamed up to win the deal – putting the finishing touches to it in June this year.

King chips in with a reference to Firmus Energy, a Northern Irish gas distribution and energy supply business which was also acquired in June 2014. Again, iCON formed a partnership – this time with Centrica and fund manager Brookfield Renewable Energy Partners – “to meet the transaction objectives that [vendor] Bord Gais Eireann wanted”. Although iCON’s capital contribution was a relatively small portion of the deal’s €1.1 billion total value, King expresses his view that the deal would not have happened without iCON’s “leadership, persistence and negotiating skills”.


King adds that the management team is “highly energised as they are now the main focal point of the new owner”. This is a point upon which Macleod elaborates: “We sometimes take businesses that are small within a large corporate environment and may have been somewhat neglected. They get support and capital and the encouragement to grow – and that gives them a new lease of life.”

A final example, offered by Macleod, is of a family business – Dutch port terminals business Verbrugge International – which needed professionalisation. Macleod says he had known owner Martin Verbrugge for seven years prior to an agreement being struck in December last year in which iCON took a 32 percent stake in the firm. Macleod says there was no competition and the market was “not aware of the deal at all”. He adds that iCON has brought to the firm new reporting standards, a new business plan and M&A opportunities.

Of course, the proof is in the pudding and investors will be focused on performance as iCON gears up for its new fundraising. The firm targets gross returns in the mid-teens, of which approximately half is expected to be generated through yield. While precise numbers are not available, Infrastructure Investor understands from market sources that iCON is well placed to exceed its return and yield targets on its first fund and from investments made to date in the second fund.