German fund manager Aquila Capital is launching a new €500 million yield-focused infrastructure strategy targeting a majority of investments in unlisted third-party infrastructure funds.
The fund will include primary, fund and direct secondaries, directs and co-investment, according to a spokesman for the firm. There is no target allocation for secondaries.
The open-ended vehicle – which is targeting a yearly cash yield of between 4 percent and 5 percent and a net return of over 7 percent – is somewhat of a departure for the fund manager, known mostly in the infrastructure space for its renewable energy funds and mandates.
“Our [new] strategy is demand-driven,” Christian Brezina, head of fund investments, private equity and infrastructure, told sister publication Infrastructure Investor.
“Most of our clients have been invested for some time in the direct funds we’ve raised and invested and now they want a certain diversification away from renewables. They have their allocations full of renewables and they asked us to build a vehicle for them that is more diversified,” but reflects the fact that Aquila does not have experience investing directly in transport, utilities, waste disposal and communication assets, he added.
The fund – which hopes to raise at least €100 million by the end of 2016 – will invest roughly 75 percent of its capital in unlisted infrastructure funds targeting defensive, brownfield infrastructure assets, mostly in Europe and the OECD. Brezina said the team is looking to initially deploy €5 million to €10 million tickets and has shortlisted funds by AMP Capital, Brookfield, Cube and Morgan Stanley as potential targets.
The remaining capital will be invested directly in renewable energy assets, to help the hybrid vehicle generate yield from year one. “The direct investments from this fund will be sourced by our direct investment colleagues and will be co-investments with mandates and funds we have with institutional clients,” said Brezina. He added these direct investments would not incur “extra fees, so investors in this fund will really benefit from the network we have in the renewables sphere”.
Brezina said the fund hopes to hit its €500 million fundraising target within three years, with a pool of some 50 limited partners. But considering it is open-ended, it may go on to raise even more capital.
“This is an open-ended fund but with some restrictions on liquidity – it is not the type of fund you can buy and sell every day,” Brezina highlighted. “We have a two-year lock-up period after subscription, so we have time to build a portfolio according to our criteria, and liquidity is capped at 15 percent at fund level.”
“That means that a usual investor in a broadly diversified fund will, on a normal year, have the opportunity to redeem all of his shares. If we have a situation like 2009, where everyone is rushing for the exits, we have a cap in place so the fund doesn’t have to be wound down and do fire sales,” he concluded.