What’s the best and most profitable way to exit an infrastructure fund? It’s a question that was inevitably pondered by the market’s pioneers in the middle of the last decade as the market took off. With those funds now coming to the end of their lives, there have been several answers to this question over the past 12 months or so, providing their peers with plenty to think about for future exits.
When DIF sold DIF PPP, its maiden infrastructure fund, to Aberdeen Asset Management and APG in 2014, it described the move as “a milestone in the history of DIF”, although to paint the deal as a milestone in the infrastructure fund market would not be a stretch either.
APG, clearly buoyed by the bulk portfolio buy, repeated the trick at the end of 2016 by partnering with ATP and 3i to acquire the assets held by the EISER Global Infrastructure Fund and then headed back to DIF in July to take DIF II off its hands. The deal was valued at more than €700 million and comprised 48 European PPP projects and DIF informed us at the time that the decision to sell the assets in one transaction enabled the fund to beat its net 10 percent target.
Aberdeen also found value in the model and switched roles in November to sell the Pensions Infrastructure Platform’s 10 PPP projects from its Aberdeen UK Infrastructure Partners fund in November.
The exit strategy clearly provides great benefits to both the vendor and the new owner and APG was back in the market in December, acquiring all eight assets held by Ardian’s €1.1 billion AXA Infrastructure Fund II. The advantages for APG in such deals are obvious, but Mathias Burghardt, Ardian’s infrastructure head, took us through what it meant from his side.
“We’re talking over €1 billion in equity but over €10 billion in asset value. We thought it was easier to maximise price by selling the full portfolio,” he said. “This portfolio has been [delivering] over 10 percent yield per annum and there was value to keep it all together.”
However, over at Infracapital, they had a different experience. The group’s co-founder Martin Lennon told us it investigated the portfolio continuation option “very rigorously” but ultimately decided on a more traditional piecemeal realisation. Infracapital found this surprising and Lennon indicated an ‘it’s not me, it’s you’ issue, pinning the lack of such an outcome on the wider market.
“When you’ve got a genuinely diversified portfolio and people start to analyse the assets individually, they can forget the portfolio value,” he said. “That was a surprise because there is clearly demand for the asset class, but it hadn’t evolved enough to give what we felt was the appropriate value to the benefits of a diverse portfolio.”
However, a different exit strategy did emerge at the tail end of 2017 – from Italian infrastructure fund manager F2i. As its 2007-vintage first fund edged towards maturity, the group began fundraising for its third offering. Carrying out what it described as “a highly ambitious project”, F2i moved the assets held by the first fund into the third, for which it raised €3.1 billion at first close, ensuring the new investors immediately begin reaping the benefits while retaining “a truly impressive infrastructure portfolio”.
Infracapital’s Lennon told us of his sadness at seeing the company’s assets leave after 12 years. Perhaps there’s another way to say goodbye?