Italy’s F2i uses rollover to close €3.6bn infra fund

The close comes after a ‘strict and intellectually rigorous process’ to move assets from the group’s first fund, according to chief investment officer Carlo Michelini.

Italian infrastructure fund manager F2i has closed its third vehicle on an increased hard-cap of €3.6 billion after using assets from its debut vehicle to seed its latest fund.

F2i III closed with contributions from more than 40 domestic and international investors, following a first close on €3.1 billion last December, with an initial hard-cap of €3.3 billion. The first close included commitments of €450 million each from Canada’s PSP Investments and Singapore’s GIC.

Ardian, which was an LP in F2i’s first vehicle, had also contributed to the first close, as sister publication Infrastructure Investor reported in December.

Some €1.7 billion of the fund’s total originated from 11 investors in F2i’s first 2007-vintage fund, with the remainder coming from new investors. Assets remaining from F2i I, such as several Italian airports and renewables group EF Solare, were pooled into the new fund last year.

Infrastructure GPs with first-time vehicles coming to the end of their life cycles have increasingly been looking at exiting them wholesale, as opposed to doing piecemeal asset sales. Structures can involve rolling over existing assets into brand new vehicles – with a lower risk-return profile and a longer duration – which they then open up to new LPs through stake sales.

In June Canadian insurer Manulife Financial closed the largest stapled secondaries deal in North America this year, resulted in the creation of a $2 billion fund and marked the entry of Manulife’s infrastructure investment team into the world of third-party asset management.

F2i’s first fund had been generating a 12.4 percent internal rate of return and a money multiple of 1.8 times up to the point of pooling last year, with the third fund targeting a similar figure. Fund II, which closed on €1.2 billion, was generating a 28.4 percent IRR through to June 2017.

The 12-year third fund has an investment period of four years from first close, extendible by two years. The hurdle rate is set at 8 percent and carry at 20 percent, with a 65 percent catch up.

Management fees have been segmented based on whether they are applied to new or existing assets and LPs. All investors pay 90 basis points on new assets, but fees for existing assets vary, with new LPs paying 60 basis points and investors from the first fund paying 45 basis points.

‘Pleasantly surprised’

F2i’s chief investment officer Carlo Michelini told Infrastructure Investor the pooling was a “strict and intellectually rigorous process”. He added the manager was pleased to be able to continue work in sectors it felt required more consolidation.

“Eventually, we were quite pleasantly surprised by the end results,” he said. “In terms of value, there was a fair value of around €2 billion for all of F2i I. We had estimated that perhaps we would have €500 million of redemptions. Instead, the net redemptions were only €300 million and many of those were investors that participated in F2i I with very small investment.”

Michelini added that F2i focused on North American and Asian LPs in a bid to diversify the investor base from its Italian foundations. Some 17 percent of the €3.1 billion raised at first close came from North America, up from 3 percent for the entirety of Fund II.

“We had to have a healthy discussion with our investors on the proposed structure, but ultimately the whole thing had to be voted by a general meeting of the investors and we got 98 percent approval,” he explained.

Capstone Partners acted as placement agent on the fund.