Why our European Infrastructure Fund is evergreen

• Alignment of interest
• Potential for higher multiples on invested capital
• The power of platforms
• Unique focus

Four years ago, we developed the conviction that our flagship core to core-plus infrastructure fund should be evergreen and focused on delivering diversification, inflation-protection and yield. Client feedback and four factors supported our conviction.

Alignment of interest

Infrastructure capital investment cycles span decades. This means that the best-aligned owners of infrastructure have similarly long-term investment horizons. Evergreen owners can think more deeply about resilience and long-term investment rather than actions which improve short-term optics but are often not sustainably value accretive. Why does this matter? We believe that evergreen capital can better align interests between owners, infrastructure and the communities served. In our view, the alignment reduces investment risks and better protects our clients’ capital.

Closed-ended funds have been an important building block for clients over the past few decades. However, an evergreen fund can engage in better capital budgeting and long-term planning, without the constraint of a near-term exit. It requires, of course, that the general partner adopts the best of the private equity playbook to maximise returns, with the advantage of time to enhance value.

Potential for higher multiples on invested capital

Closed-end funds typically invest over three to five years and individual investments are typically held for five to seven years. This is a private equity investment model. It naturally focuses on internal rates of return as the key performance metric, which is the foundation of measuring performance and remunerating the manager.

This approach obscures the fact that client capital is often deployed for a relatively short time, given it generally takes longer for closed-end fund investors to be fully drawn and invested. By contrast, new investors in an evergreen fund can typically be invested within one to two years (rather than three to five) and enjoy compounding of more of their capital over a greater period. Additionally, an evergreen fund has the benefit of allowing investors to control the level and pace of further investments (with limited due diligence cost), providing flexibility on portfolio construction and allocations.

We have noted an interesting trend since launching our European Infrastructure Fund: more and more closed-end competitors are seeking to create continuation funds to hold assets for longer. We prefer to keep it simple and start evergreen.

The power of platforms

Origination and execution are costly in private markets. It’s hard to find great assets and, when you do, it’s costly to conduct due diligence and difficult to buy at a compelling price. And that’s just the process of acquisition – selling assets is just as time-consuming and expensive.

Closed-end funds typically make an upfront investment but are constrained from making ongoing expansionary investments as they run out of capital. Evergreen funds are not. This means that evergreen funds can continue to invest in the growth of platform companies long after the initial investment. The effect is that evergreen ownership better accesses the power of platform companies within a portfolio. By way of example, our European Infrastructure Fund holds stakes in platform companies such as Amedes, Finerge and Lyntia which continue to generate follow-on investment opportunities without incurring material transaction costs.

Unique focus

In surveying the market in 2020, we learned that no one offered an evergreen European core to core-plus full-spectrum infrastructure fund. We thought, considering the above factors, that it was a market worth serving – especially considering our DNA as long-term owners and builders, supported by long-term investor capital. A full-spectrum offering over a longer investment horizon gives us the flexibility and dynamism to consider a broad range of investment opportunities – and consider the most attractive opportunities across the market cycle.