UK pension seeks fee discounts before committing to new UBS fund

The Swiss manager is seeking up to $1.5bn for its first infrastructure equity vehicle since 2015.

The UK-based East Sussex Pension Fund is set to invest £40 million ($49.7 million; €44.4 million) into UBS’s new infrastructure equity vehicle, provided it can secure a discount on fees.

The pension fund’s consultant Hymans Robertson has recommended the investment into Archmore International Infrastructure Fund III, “subject to negotiating a discounted fee with UBS”, documents for the pension scheme’s meeting next week state.

The pension is a limited partner in UBS’s $644 million predecessor fund, which closed in 2015, and its documents praise the manager’s “very clear and consistent investment philosophy”, as well as its attempts “to prevent any style drift”. East Sussex also uses UBS as a manager for a number of equities strategies.

UBS declined to comment. East Sussex could not be reached for comment at the time of publication.

AIIF III launched earlier this year with a $1 billion target and a $1.5 billion hard-cap, according to a UBS document. It charges 1.25 percent management fees on invested capital and 0.75 percent on unrecovered capital. Performance fees are set at 15 percent based on a 7 percent net internal rate of return hurdle rate.

The fund will predominantly invest in North America and Europe, with up to 15 percent set aside for developed markets in Asia-Pacific and Australia. Targeted sectors include energy, utilities, transport and telecoms, with a targeted gross and net IRR of 10 percent and 8 percent, respectively and a 7 percent dividend cash yield.

“We prefer income-based strategies with a more conservative IRR but with a higher cash yield that is distributed year after year,” UBS’s head of infrastructure Tommaso Albanese told Infrastructure Investor in an interview in January.

AIIF II is generating a 39 percent gross IRR and 26 percent gross yield, figures from UBS dated the end of September 2018 show. The fund made its final investment earlier this year in Portuguese gas supplier Gascan.

It has also invested in a combined-cycle generation facility in the US and a portfolio of 13 thermal power plants with a capacity of 1.5GW. It also owns a Spanish toll road, UK utility Southern Water and Australia’s Axicom, a mobile infrastructure provider.