Hamilton Lane raises $590m for first infra co-investment, secondaries fund

The firm is replicating its private equity strategy in infrastructure, with its inaugural co-investment and secondaries vehicle.

Hamilton Lane has closed its inaugural fund focused on secondaries and co-investments within the infrastructure space.

Hamilton Lane Infrastructure Opportunities Fund surpassed its $500 million target, which was set  March 2020, to reach a $590 million close at the end of June.

On the fund, Brent Burnett, head of real assets at Hamilton Lane, told affiliate publication Infrastructure Investor: “This is very consistent with how we’ve approached other areas of investment. Hamilton Lane has a direct equity fund on the private equity side. Hamilton Lane has a large secondary fund on the private equity side. So this is the latest offering in Hamilton Lane’s fund platform, and it’s in a new asset class – infrastructure.”

The one major difference, in this respect, will be the targeting of more conservative, infrastructure-like returns. Burnett continued: “Unlike our other commingled fund series at the firm that target private equity-like returns, this fund is very much oriented toward an infrastructure asset class in the core-plus, value-add space. That’s going to make it a lower return profile relative to traditional private equity. But it’s going to have a more balanced mix between current income yield and capital appreciation, consistent with an infrastructure asset class.”

When Hamilton Lane launched the fund, it had generated a gross money multiple of 1.7x and a gross IRR of 19 percent from its previous discretionary infrastructure co-investments and secondaries deals, as in September 2020, according to fund documentation.

It’s all about the LP

Why the unique structure, then? Burnett said that Infrastructure Opportunities would allow the firm to be “better stewards of capital for our LPs”.

He added: “We’re aligning [our LPs] closer to the assets, at what we believe are very efficient terms. It allows us to be a better capital partner to our GP relationships and gives us more flexibility in how we partner with them.”

The 10-year vehicle charges management fees of 1 percent and carried interest of 10 percent, according to fund documents, and includes a $15 million Hamilton Lane GP commitment.

LPs seem to have agreed with Burnett and the firm’s point of view, going on the vehicle’s success. “There’s certainly an institutional appetite for this product,” Burnett said. “But I think the other piece that made it successful is that the Hamilton Lane platform has a very strong playbook for execution on fundraising; we were able to circle up an initial close with existing relationships.”

The types of LPs that have come on board are varied, according to Burnett. “A mix of Taft-Hartley family offices, large institutional pensions and sovereign wealth funds,” he said.

Hamilton Lane has been trying to secure capital commitments during a time of pandemic, supply-chain gluts and global inflation, and Burnett noted these difficulties still affected Hamilton Lane.

“There are certainly some headwinds as well to fundraising – interest rate uncertainty, the uncertainty about a potential global slowdown, the public market volatility,” he said. “[Public market volatility] made the last three months of the fundraise a little more challenging because LPs were constantly dealing with a changing denominator on their overall portfolios that was kind of shifting how much they had available to allocate to newer relationships.”

About $250 million has already been deployed, according to a press statement. On the existing portfolio, Burnett said it will be “very consistent with where we think the total portfolio will end up” – that is, 30 percent in data and telecoms, 20-25 percent in transportation, 20-25 percent in renewables/energy and 10 percent in wastewater and utilities.

“The fund has a small to mid-cap bias,” Burnett said. “So about 75 percent of the existing portfolio is in the small to mid-cap space, transactions that have an enterprise value below $500 million. During the [earlier stages of fundraising], we were obviously making smaller ticket sizes, given the capital we had raised early on, but moving forwards, the average ticket size will be around $25 million.

“As we continue to build out the portfolio, there are three themes that will continue to drive us: energy transition, digitisation and transportation and logistics. At the end of the day, I think we’ll end up heavier in data, telecom, transportation and logistics, renewable energy, traditional power and traditional midstream energy.”