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The Pipeline: Carlyle heads to Korea, UK green bank’s comeback, Southern Europe super core for Macquarie

Carlyle answers Korean LPs' call, the UK’s Green Investment Bank makes a comeback and Macquarie keeps the silver in the family.

First look

Korean LPs want some ‘herd community’

Follow the leader: Korean LPs seek leadership on post-covid due diligence

South Korean LPs are having difficulties with executing overseas infrastructure investments due to covid-related travel restrictions, two Korean LPs said.

“Even though we have funds to invest, we don’t sign deals as overseas due diligence is still difficult,” a life insurance manager told us.

A spot of ‘herd community’ could help, suggested a portfolio manager at a Korean pension: “Most LPs haven’t set due diligence guidelines for these exceptional times. I think if an LP takes action, others will follow the method.”

And if that isn’t forthcoming? Call your overseas GP, said the life insurance manager: “We focus on blind [pool] funds, as they hedge risk, diversify investments and outsource professional skills. Those are big benefits when we can’t see the assets in person. Also, we have a more positive view of infrastructure than real estate during the pandemic, as many people work from home instead of in offices.”

Carlyle answers Korean LPs’ call with $600m fund
Due diligence difficulties are clearly not a problem for the Carlyle Group and South Korea’s Shinhan Alternative Investment Management. Both have agreed to create an infrastructure debt fund – dubbed the Shinhan-Carlyle Infra Credit Fund I – targeting $600 million, as first reported by Korean media last week.

The fund is focused on Korean institutions, will invest mainly in the US and Europe, and targets annual returns of 6-8 percent in Korean won terms. Korea’s Hana Financial Investment will sell down the fund as a main underwriter.

“Shinhan has a limited veto right to decide whether to include Carlyle’s infrastructure deals in the fund,” Phillip Lee, senior vice-president at Shinhan, told us.

Lee said the Korean asset manager is reviewing lots of deals, including a midstream company in the US, renewables in the US and South America, a US port, and a mobile tower in Europe. He added that it would close one or two deals this summer.

Guess who’s back?
Remember when the UK government was accused of “selling off the family silver” as it divested the Green Investment Bank to Macquarie in 2017? Well, someone had better alert the deal team at Macquarie, as GIB 2.0 is now on the agenda.

Energy minister Kwasi Kwarteng told a webinar last week hosted by climate campaign group UK100 that he expects the government to reveal details on a successor bank “in the not-too-distant future”. He also spoke of the “ongoing debate within government about how we can in effect create the Green Investment Bank 2.0”.

The new vehicle could be modelled on Germany’s KfW, according to Kwarteng, an ambition UK government ministers have had for over a decade.

But maybe not too closely. We still recall when KfW was instructed by the German government in 2018 to spend about €1 billion blocking Chinese investment in 50Hertz, a situation that hasn’t exactly thawed.

Let’s make the recovery green
Presumptive US Democratic presidential nominee Joe Biden unveiled a key campaign proposal last week linking economic recovery with a large-scale buildout of clean energy. As part of a $2 trillion package, the former vice-president pledged to spend $1.7 trillion on developing clean power sources. He said this would create badly needed jobs while putting the US on track to reach 100 percent clean electricity nationwide by 2035.

During our Global Offsite last week (see here, here and here), Pooja Goyal, a partner at Carlyle, correlated a clean power buildout with a pandemic-related economic stimulus. “During the great financial crisis in 2008, you saw parts of Europe significantly pare back support for renewables, even on a retroactive basis,” she said. “And there is an argument to be made that it set the market back a few years in those countries. What’s interesting is that this time around, renewables is part of the recovery: a job creation strategy.”

That gets our vote.

Grapevine

“I am concerned about best value for current PFI projects, some of which scandalously don’t deliver on original aims”

With no new PFI projects to bash, Jesse Norman, the UK’s financial secretary to the Treasury, turns his ire on operational assets at the UK Sustainable Infrastructure Policy and Investment Online Summit

LP watch

ERS heads to new pastures
The Employees’ Retirement System of Texas is planning a substantial covid infrastructure spend, according to the minutes of its May retirement board meeting. The LP said it intends to commit $400 million across three to six private infrastructure investments in fiscal year 2021.

However, ERS is planning to get out of the US. It is also planning to increase its emerging economy infrastructure exposure from 30 percent to half of its total infrastructure allocation. The scheme is already an investor in the likes of KKR Asia Pacific Infrastructure Investors and Actis Long Life Infrastructure Fund.

According to its evaluation criteria, the institution is looking for infrastructure portfolio managers that have yielded attractive returns, both in absolute terms and relative to peers, and that have displayed a history of steady capital deployment across different vintage years.

Deals

Southern Europe is now ‘super-core’

Welcome to the club: Southern Europe now ‘super-core’ for MIRA

Macquarie Infrastructure and Real Assets has made a further divestment from its 2011-vintage MEIF4 vehicle with the €2.7 billion sale last week of Spanish electricity distribution and generation group Viesgo to Portuguese utility EDP and EDP Renováveis.

It brings an end to MEIF4’s six-year ownership of the company it bought alongside Wren House Infrastructure from E.ON for a €2.5 billion enterprise value. The Kuwaiti investor’s 40 percent stake was taken up through pre-emption rights by Macquarie in March.

However, the curtain hasn’t come down fully for Macquarie, with Viesgo becoming the third asset to be held by its Super Core Infrastructure Fund, which will hold a 25 percent stake.

That seems like a slight change of tack considering that Leigh Harrison, MIRA’s head of EMEA, told us in 2018 that SCIF was looking at “core regulated assets in Western Europe” trading well below the 10-12 percent targeted by MEIF funds, which were “looking at more complex situations or different geographies such as central and southern Europe”.

Looks like southern Europe got an upgrade, then.


Today’s letter was prepared by Zak Bentley. Jordan Stutts and Ji Hyun Kim also contributed