Assisted Search: Infrastructure – UI051023 – Deadline: Thursday 2nd November 2023
A UK Investment Consultant is using CAMRADATA to run a search for exclusively unlisted infrastructure funds. The consultant will be looking to select new managers in the new year. All funds being proposed must be listed in CAMRADATA Live and returns must be up to date i.e. to 30 June 2023.
If you would like to put a fund, or a number of funds, forward for this search, then you must, in the first instance, contact CAMRADATA with the name of the fund that you would like to propose.
Please note: WE NO LONGER ACCEPT QUESTIONS OVER EMAIL. Please post any questions regarding this search onto the CAMRADATA Live ‘Assisted Searches Forum’ and we will endeavour to answer these as quickly as possible.
Assisted searches are run on behalf of institutional investors with specific search requirements.
|Asset Class||Unlisted Infrastructure|
|Deadline||Thursday 2nd November |
|Market Focus||Development Stage of Infrastructure: Predominantly Brownfield assets (c. 75% of the Fund), with limited exposure to late-stage Greenfield projects. Brownfield Assets: Funds with a majority of these types of assets are preferred since they are already operating and revenue-generating, signifying reduced risk.Greenfield (Late-Stage): Some exposure to late-stage Greenfield assets with approved plans can be considered, but with caution, and exposure should be limited to 25%)Types of Infrastructure Categories:Core Infrastructure: Funds with a majority invested in core infrastructure assets due to their stable nature.Core-plus Infrastructure: These can be included due to their resemblance to core assets with variable cash flows.Value-add Infrastructure: Limited or no exposure due to higher risk associated with these assets due to their reliance on projected growth or repositioning orientation. Opportunistic Infrastructure: Limited or no exposure due to higher risk of these types of assets|
|Structure||Open ended Fund|
|Currency||GBP / GBP Hedged|
|Geographical Focus||A focus on geographical diversification within established/developed markets with more stable political and economic conditions.|
|Management Experience||Teams with over 15 years of experience in infrastructure investment preferred. Their historical performance should be within the top quartile for their category.|
|Benchmark||Edhec Infra300 Equity|
|Cash Yield||5%–7%+ p.a|
|Inflation Protection||Most of the fund’s assets should have a high degree of inflation protection through regulatory or contractual mechanisms|
|Performance Target||Target returns in the high-single to low-double digits.|
|Mandate Size||Allocation size from their clients will vary depending on the size of the client. Will range from £500k to £10 million.|
|Length of Fund||Open-ended, but with operational mechanisms in place to mitigate liquidity risks.|
|Operational Mechanisms||Preference for funds that feature robust gating procedures, transparent valuation mechanisms, and clear cost structures.|
|Portfolio Diversifications||A cap of 30% allocation to any single infrastructure sector, and no single investment exceeding 10-15% of the fund’s total value.|
|Exclusions||Investments must not involve:Firms with compliance or regulatory issues in recent history.Activities in politically unstable regions. Any sectors or activities that are illegal, unethical or controversial.|
|Management & Governance||An experienced and specialised team.An impeccable track record.A strategy that underscores sustainability and long-term returns.Governance standards that match industry best practices.|
|Alignment and ESG||The fund must be ESG compliant, reflecting investor values and priorities, while also ensuring mechanisms are in place to maximise value for investors.|
|Other Requirements||Reasons for preference for Unlisted Open Ended FundsOur preference is for unlisted open ended infrastructure equity funds. The reason for our preference for open-ended funds over closed-ended funds is their perpetual or “evergreen” structure, which allows them to hold onto assets indefinitely.This characteristic has a few crucial benefits:Flexibility in Holding Period: Open-ended funds are not bound by a fixed term, so they aren’t forced to liquidate assets at potentially inopportune times. This means that if an asset is appreciating or generating consistent income, the fund can continue to hold and benefit from it.Avoiding Forced Sales: Closed-ended funds have a predetermined life, often 10 years with possible extensions. When this life ends, the fund must liquidate its holdings, which can sometimes result in selling assets at suboptimal prices due to market conditions. Open-ended funds don’t face this pressure, allowing assets to be sold when it’s strategically advantageous.Vintage year risk: Returns for closed-end infrastructure funds may vary due to vintage-year effects of investing and divesting assets across various economic environments. These risks are mitigated by open ended funds that invest continuously over all vintages.Mitigation of Market Cycle Impact: Since open-ended funds don’t have a fixed end date, they can be more resilient to market cycles. In contrast, a closed-ended fund that ends during a market downturn might realize lower returns upon liquidation.Stable, Long-term Income Stream: For income-producing assets, such as real infrastructure investments, the evergreen nature of open-ended funds can allow for a consistent income stream over an extended period without the disruption of having to sell the asset.Long-term Investment Strategy: The absence of a fixed end date can align with certain long-term investment strategies, especially in sectors where assets appreciate over extended periods or where long-term planning is advantageous.While the perpetual structure of open-ended funds offers these benefits, it’s also essential to balance them against potential challenges, such as liquidity concerns or the management of prolonged inflows and outflows.Mitigating the Risks of Unlisted Open Ended Fund StructuresOpen-ended infrastructure funds allow for increased flexibility, but they come with potential risks. We are particularly interested in funds that have addressed these risks in some of the following ways: a) Fund Implements Discretionary Liquidity Restrictions:The fund uses gating procedures, which limit the amount of capital that can be withdrawn in a given period. This helps prevent mass redemptions and forced selling.b) Fund has notice periods for large withdrawals to give the fund ample time to make liquidity arrangements.The fund uses lock-up periods where new investments cannot be withdrawn for a set time.c) Third Party and Regular Valuation:The fund employs third-party experts for regular asset valuations to ensure that the net asset value (NAV) reflects the current market situation.d) Transparent Communication:The fund managers regularly inform investors about the fund’s liquidity status, investment strategies, and any significant changes in market conditions.e) Fee Management:The fund uses the offer spread method (or other similar method) for incoming investors, charging them directly for the costs associated with their investment. This protects long terms investors, who would otherwise be subsidising the costs of deployments of new investors.f) Matching Redemptions with New Investments:The fund aims to coordinate inflows and outflows by matching redeeming investors with new investors. This can increase liquidity without needing to liquidate assets.g) Diversification:The fund invests in a diverse range of assets (both by geography and sector) to reduce vulnerability to market fluctuations in a particular sector or geographic region.h) Stress Testing and Scenario Analysis:The fund regularly conducts stress tests to assess the fund’s ability to meet redemption requests in extreme market scenarios.|
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