Taiwan’s first domestic infra fund nears first close – exclusive

The fund has already raised more than $250m, mainly from Taiwanese life insurers, and will focus on attracting commitments from public pension funds over the next year.

Taiwan’s ‘first’ infrastructure fund, currently being raised by Cathay Securities Investment Trust, will reach a first close no later than “early December”, a senior executive from the firm told Infrastructure Investor.

The Cathay Sustainable Private Equity Fund, will raise 8 billion new Taiwan dollars ($258 million; €227 million) at first close, after having received commitments from several domestic institutional investors, said Steven Peng, director of private equities for Cathay Securities Investment Trust.

Cathay Life, the largest life insurer in Taiwan, will commit 25 percent of the final amount of capital raised by the fund, he said, adding that the other investors in the strategy are mainly “life insurers, coupled with other institutional investors like P&C insurances and foundations”.

Peng said this was the first infrastructure-focused fund with an LP structure raised in Taiwan. “There are several VC funds [in Taiwan], but this is the first infrastructure-focused fund,” he explained.

The vehicle is targeting a final close of 10 billion new Taiwan dollars within the next year. Peng hopes to attract commitments of 2 billion new Taiwan dollars from government funds, such as the National Development Fund and the Bureau of Labour Fund, the institution that manages public pension funds’ investments.

“That’s what we will be working on during the second phase of the fundraising,” Peng said. “In Taiwan, we are just starting to know more about private equity, and not only the people, but also government officials need to know [more about] private equity vehicles, and how they can bolster economic growth or industry development.”

The asset manager had expected to hold a final close this past April, sister publication Private Equity International had reported in October 2017. Asked why fundraising was delayed, Peng told Infrastructure Investor that it was due to regulatory changes that would allow Taiwanese insurers to invest in new Taiwan dollar-denominated private equity funds.

The Cathay Sustainable Private Equity Fund is aiming to achieve a 5 percent IRR through investments in domestic infrastructure assets.

“[Returns] are not as high as those of overseas investment vehicles, but they are attractive in terms of local currency allocation,” he said. “When we came up with this investment vehicle, institutional investors thought it was an interesting idea.”

The fund will invest in three different types of assets, all of them included in the Taiwanese government’s “Five plus two” innovative industries plan, which is designed to modernise the island’s industry and boost its economic growth. The three categories are renewable energy, circular economy (through projects such as waste-to-energy or wastewater treatment facilities) and other subsectors included in the policy, such as new agriculture and long-term care.

“We will choose subsectors from the policy that are similar to infrastructure. If we invest in new agriculture, for example, we will invest in facilities, not in technology companies or service providers,” Peng explained.

Although the fund will be focused on brownfield projects, Peng said it might also invest in greenfield projects with construction periods no longer than one or two years. “There are very few brownfield investment opportunities right now [in Taiwan],” he said.

The fund is looking to participate in the island’s booming offshore wind industry that has caught the interest of international investors since the government announced an ambitious plan to raise its offshore wind capacity to 5.5GW by 2025.

Peng said the fund will not invest in more than one deal in the offshore wind sector, and it is already in talks with an international developer with a presence in the region.

Although the fund’s mandate is to deploy the capital in six years, Peng is confident it would be possible to fully deploy the fund in half the time.

“I don’t worry about deal sourcing, we have been approached by operators and developers looking for our equity financing. We are confident that we’ll have enough deals in our pipeline,” he said. Peng also stressed Cathay Group’s project financing experience and its numerous connections among the island’s operators and developers.

The fund team currently comprises three people, but the firm is planning to expand the team to five within the next six months, and to then double that number in the next two to three years, he said.

Cathay Securities Investment Trust, a subsidiary of Cathay Financial Group, is the largest asset manager in Taiwan, with assets under management totalling nearly 600 billion new Taiwan dollars. It primarily invests in public markets.