London-based Sequoia Investment Management Company is raising an infrastructure debt fund with a twist: the independently owned asset manager will not be focusing on originating loans directly, but has instead entered into an agreement with three banks to seed assets from their project finance portfolios.
The Seqimco Infrastructure Debt Fund, as the vehicle is known, is targeting a first close this quarter of between €100 million and €200 million and is aiming to raise a total of €1 billion, according to Dolf Kohnhorst, a director and head of sales and distribution at Sequoia. The European Investment Bank has preliminarily approved a €25 million investment into the fund.
“We have entered into a partnership with three banks – one of them being [Portugal’s] Banco Espirito Santo – which are our preferred originators [of assets]. Our objective is to work with these banks (although we can also work with other banks) rather than originating our own loans. The fund aims to invest in a diversified loan portfolio financing essential infrastructure assets in core European countries – excluding Portugal, Greece and Ireland,” Kohnhorst explained.
The fund’s partnership with the three banks will allow it to readily invest funds raised, which Kohnhorst highlighted as a “big plus” when compared with other debt vehicles that have to originate their loans. On its website, Sequoia says it will reduce “any drag on investor returns because of a slow ramp-up that is often a characteristic of infrastructure sector investment”.
The Seqimco Infrastructure Debt Fund will divide its portfolio into a Class A composed of investment grade assets and a Class B, which will mostly contain borderline investment grade loans. Kohnhorst said that the potential EIB loan is set to help fund Class B acquisitions.
He also pointed out that Sequoia is looking to acquire loans “commensurate with where the market is now” in terms of price and structure. The fund is not planning to acquire the sort of low-margin loans that banks originated prior to the global financial crisis, he added.
Law firm Clifford Chance has been advising Sequoia on the launch of its debt vehicle.