Schroders revises infra equity strategy

The French manager has split its debut infra equity vehicle into two funds – a dedicated fund requested by a European insurer, and its first commingled fund targeting €500m.

Schroders is aiming to raise €500 million for Mid-Cap Infra II, a fund that will invest at least half of its total in France and the balance in the rest of Europe.

The dedicated infrastructure asset management arm of the French company plans for a first close in the autumn of at least €200 million, Charles Dupont, president of Schroders, told Infrastructure Investor.

The firm had launched its debut infrastructure equity strategy last December, seeking to raise €700 million.

However, “during the pre-marketing stage, one of the top insurance companies in Europe liked the strategy so much that they asked us to create a dedicated fund for their own purpose”, Dupont explained. “That translated into Mid-Cap Infra I,” which has invested most of the €120 million raised.

“Now Mid-Cap Infra II is the first commingled fund that is replicating the strategy initially developed into Mid-Cap Infra I,” he said.

The fund is targeting assets within the energy transition space, including grid investments as well as renewables. It will also target the digital infrastructure sector and transport space where it can find opportunities for the improved mobility of goods and people. A gross return of 10-12 percent is targeted and a gross cash yield of 6-7 percent, while ticket sizes will range between €30 million and €80 million, Dupont said. While at least half of the fund’s investments will be in France, Dupont insisted the strategy should be seen as pan-European.

“It’s a European fund with a specific aim of having more than 50 percent in France, which is unique in the market,” he said. “France is also the largest market for dealflow in Europe and is favoured by investors.”

Dupont also sees the appetite of Schroders’ investors and the current crisis being advantageous for the new fund.

“Our existing investor base is a combination of European and Asian investors, which are interested in income-generating assets,” he outlined. “The strategy is relevant for most of this investor base because we focus on essential infrastructure and resilience of financial cycles. The fact we have a minimum 50 percent in France target will incentivise a number of French investors, which are very interested in allocating more capital in France, especially in a context [where] every government wants to see financial investors allocating some resource to the recovery.”

Dupont added that the French focus is consistent with Schroders’ strategy in general with 76 percent of its infrastructure equity portfolio, worth over €700 million, based in France. Before launching Mid-Cap Infra II, the firm invested in infrastructure equity through separate accounts or dedicated funds.

The strategy of Mid-Cap Infra II to invest in companies rather than assets is also consistent with previous investments, Dupont added. “We are a brownfield investor and we are focusing on income-generating assets. We believe the mid-market offers more opportunities than capital available in Europe and where we see more attractive risk returns than in the other segments.”