The Pipeline: bfinance’s Q1 take, infra debt’s boom, Zenith takeover rumbles on

Consultancy bfinance assesses funds' performance, debt funds taking the covid crown and SWFs still keen on infra.

First look

Q1 frying pan before the Q2 fire?

No surprises: Transport takes a hit in bfinance’s Q1 analysis

While firms and funds are still digesting their Q2 results, Anish Butani, senior director of private markets at consultancy bfinance, has provided an indication of what to expect with an analysis of Q1 valuations recorded by 17 unlisted infrastructure funds. Here are some highlights:

*Currency conundrum: Butani revealed a “very pronounced difference” between local currency returns and fund currency returns for the seven open-ended vehicles analysed. In Q1, these funds delivered a median net IRR of 0.1 percent in local currency terms and -2.6 percent in fund currency terms, usually denominated in US dollars. This exposes the challenges of global strategies investing in high number of non-USD assets.

*Open-end, open-analysis: This performance is easier to track in open-end funds, which are generally considered more transparent and with “well-established valuation” procedures that can be subject to external scrutiny. Close-end funds generally have less well-defined quarterly procedures and are more reliant on annual yield and exits.

*Not all sunshine for renewables: With revenues still somewhat dependent on merchant power prices, Butani sounded a note of caution on the sector. He noted that a long-term assumption about energy prices was driving equity upside, despite continued uncertainty around power price forecasts.

Infra debt looking more and more like a winner
A few weeks ago, we wrote that infrastructure debt could emerge as one of the ‘winners’ of the covid-19 pandemic. If last week is anything to go by, that may already be happening.

In case you missed it, AXA Investment Managers closed its second infrastructure debt fund on €1.05 billion, comfortably exceeding its €750m target and backed by 40 percent of LPs that were newcomers to the asset class. Schroders, for its part, held a €312 million first close for its Julie II fund, which is targeting €750 million for sub-investment grade European infrastructure debt. Finally, HSBC Global Asset Management launched its first two infrastructure debt funds with a combined $1.5 billion target.

To round it all off, a majority of participants in EDHECinfra’s webinar last week, when polled, thought infrastructure debt was much more interesting than equity nowadays.

Winning, then.

Litmus test for post-covid first-time funds?
While HSBC attempts to crack the debt market, there is progress for first-timers in equity too. London-listed Intermediate Capital Group informed the market last week that it had raised €500 million for its maiden infrastructure fund, €200 million of which came from ICG itself. Sources put the European vehicle’s target at between €1 billion and €1.5 billion.

With the team assembled from EDF Invest in 2018, the fundraising effort may be a true test of how first-time managers can raise funds in today’s market. The fund’s first asset – a 30 percent stake in Océinde Group, a fibre broadband provider in the French department of Réunion – had been warehoused since its 2019 acquisition.


“Taking carbon emissions: if a company is not showing any enthusiasm about pursuing more energy-efficient policies, that, in and of itself, is not a reason to invest or to not invest. However, if the regulation in that country is showing signs of [being] likely to introduce a carbon tax […] then that is when it becomes a financial risk and affects our investment decision”

Jemima Atkins, assistant vice-president in Allianz GI’s infrastructure debt team, explains the group’s approach to its ESG-integrated strategies

Who’s hiring

One becomes two at Herbert Smith Freehills
Herbert Smith Freehills has promoted both Gavin Williams and David Ryan to co-heads of global infrastructure in its London and Sydney offices, respectively. Williams specialises in transactions and joint ventures, while Ryan has advised on energy and infrastructure, as well as government privatisations. The move to two heads is something the firm has been doing across several of its teams, HSF tells us.

And what of the six-year incumbent, Patrick Mitchell? Happy clients need not worry as he’s not going anywhere. Mitchell will continue to work within the infrastructure team, but will also focus on training up some of the younger talent in the unit, which is said to be one of his personal passions. Mitchell has led the practice since 2014, although he has been with HSF since 1999.

LP watch

Sovereigns search for stability
Invesco has released the latest edition of its annual Global Sovereign Asset Management Study. Covid-19 is doing little to dampen the wealth funds’ appetite for infrastructure, with 43 percent of respondents indicating a wish to increase allocations over the next 12 months and 54 percent planning to maintain current levels. The most favoured sector for investment is electricity generation and transmission (54 percent), with SWFs keen on decarbonisation assets as “a way of fulfilling ESG goals”.

Unsurprisingly, appetite for airports (24 percent) is low – notwithstanding the extensive SWF presence in assets such as Heathrow – though not as low as the appetite for ports (17 percent). That being said, the report noted several sovereigns had expressed an interest in distressed sectors, with regulated assets still held in high regard for their predictability of income.


PEP finally at its Zenith?

Finally mine? Zenith provides off-grid solutions to, among others, Australian extractives projects

An attempt by Pacific Equity Partners to take control of ASX-listed Zenith Energy, a company that specialises in off-grid power generation, took another twist last week. The bidding consortium – stitched together in June – was forced to up its offer from an initial A$1.01 ($0.72; €0.62) per share to a best and final offer of A$1.05 after another major shareholder signalled its intention to vote against the deal.

Our understanding is that Westoz Funds Management, with a 12.94 percent stake in the business, had the potential to make the shareholder vote tricky because so much of the register is currently held by Zenith’s management, who are unable to vote on the scheme of arrangement.

PEP and its partners will hope their BAFO, which represents a big 51 percent premium to Zenith’s last closing price before the first offer was announced in March, will seal the deal at last.

Big batteries have arrived
Solar power with battery storage has officially made it to the big stage in the US. Clean energy specialist Capital Dynamics announced last week a 555MW solar-plus-storage development in Nevada, which followed a similar new-build project managed by Quinbrook Infrastructure Partners – a 690MW facility. If batteries have been the missing link to truly make solar power a trusted generation option, the arrival of these projects at utility-scale could set the stage for the next act of the clean energy revolution.

Today’s letter was prepared by Zak Bentley. Bruno Alves, Daniel Kemp and Jordan Stutts also contributed

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