Whitehelm and APG hold €250m first close on world’s first smart cities fund

The two firms say they ‘will be blazing some trails’, with the sub-sector set to become a ‘bigger part of the infrastructure market’.

European infrastructure manager Whitehelm Capital and Dutch pension group APG have held a €250 million first close on the world’s first institutional smart cities fund.

The Smart City Infrastructure Fund has received the initial commitments solely from APG, following ongoing conversations with Whitehelm for a couple of years. It will look to primarily invest in projects across Europe, North America and Australia, although it is also eyeing other “major urban areas”.

The pair said the fund was established to bring long-term institutional financing to meet existing public financing of small-scale pilot projects and scale up, with Whitehelm having been working on the concept for several years.

“Historically, smart city infrastructure has been stuck in the trial phase,” Tom Maher, head of business development at Whitehelm, told Infrastructure Investor. “Our view is, now enough of those have been done and enough evidence points to the benefits, that we are at that tipping point and more people will look to implement this on a larger scale. Having a capital provider [such as APG] able to do that is critical.”

Whitehelm and APG said the fund does not have a targeted figure, but will seek to deploy capital and subsequently head back to the market based on what is required. The fund will target “PPP-style” returns, Carlo Maddalena, senior portfolio manager at APG, added, with the pair confident the first investment will be sealed in 2019.

“We may look to raise further capital at some point in time, but we’re not looking to do that now,” said Maher. “This is not the first of a couple of closings that are going to happen immediately. We’re going to look to deploy the €250 million and after that we will revisit the capital needs at that point in time. A few years ago, it would have taken quite a while to invest. We expect to deploy in a couple of years, but it will depend on the evolution of smart cities as an asset class.”

Maddalena and Maher said the potential suite of projects covers a broad spectrum, with the APG manager identifying “anything that is digitised in terms of infrastructure” and that can be implemented with a city or municipality.

“What’s important for us is finding projects that facilitate smart cities but provide the right risk-return profile for an infrastructure investor,” Maher added. “We’re there to support the infrastructure part of the risk profile and provide the infrastructure backbone to smart city solutions.”

Maher also predicted the move to be the start of significant growth for smart cities as a sub-sector, although he believes it requires a sophisticated investor with more long-term capital horizons.

“This will become a bigger part of the infrastructure market going forwards and we genuinely believe there’s a first-mover advantage. We will be blazing some trails and there’s probably a risk premium you pick up for doing that,” he said.