The San Bernardino County Employees’ Retirement Association (SBCERA) has committed $50 million to the Fortress Worldwide Transportation and Infrastructure Fund (FTIA), according to board meeting memos on its website.
The investment will keep SBCERA’s allocation to infrastructure close to its 1 percent target as its current allocation to Highstar Capital's Highstar III fund winds down. The commitment to Highstar III was initiated in 2007, and is worth about $53 million or 0.7 percent of the total fund allocation, according to the memos.
“What attracted me to this investment is the high upfront income component (8 percent dividend) within an allocation that has been disappointing from a cash flow basis,” chief investment officer Donald Pierce said in the minutes.
SBCERA sees the Fortress commitment as a strategic opportunity, although the fee on invested capital, standing at 1.5 percent, is higher than it would like. “But at least it is on invested capital,” Pierce said.
Fortress currently manages $12 million of SBCERA’s assets within the Fortress Japan Opportunity Fund II.
The 10 percent carry incentive over an 8 percent preferred rate of return with a 60:40 catch-up is also acceptable, according to Pierce.
From an exit standpoint, the potential of taking FTIA public provides for a “liquidity event”. However, “should an IPO not occur, we would still be comfortable with a higher yielding private fund and SBCERA would be prepared to hold the allocation for the fund life,” Pierce said.
FTIA has re-opened for commitments after initially closing with $395 million in commitments in January last year. Fortress intends to raise an additional $600 million and has secured $97 million of this in 2014, meaning aggregate commitments now total $492 million. The final close is expected to be held no later than July 31, 2014.
Fortress has disclosed that it intends to IPO the FTIA portfolio within the next 12 to 18 months, according to the memos.