Citi spin-out closes maiden fund on $428m

Originally targeting $1bn, the founders of Alterna Capital Partners decided to close the fund and begin investing because they saw ‘the best environment we’ve seen in our entire career’ for investing in long-lived assets such as rail, ships and power plants.

Alterna Capital Partners, an independent private equity firm based in Connecticut, has closed its debut fund on $428 million, the firm said in a statement.

The founding partners were originally targeting $1 billion for the fund but decided to wrap-up fundraising early. “It was really driven by the desires of our investors. They made it clear they wanted us to be spending time investing the money rather than raising capital,” Harry Toll, managing partner at Alterna, told InfrastructureInvestor.

Alterna secured much of its investor commitments from pension funds, who primarily invested in Alterna from their infrastructure, real asset or private equity allocations, Toll said.

Rail: core capital asset

The firm invests in core capital assets, which are long-lived, physical assets which generate cash income and are vital to the transportation, industrial and energy sectors. Examples include rail, ships and barges, port and transportation facilities.

“It’s the best environment we’ve seen in our entire career” for investing in such assets, said managing partner Eric Press. “It’s been something like the early 80s when we last saw an environment like this,” he added.

He said the investment environment for core capital assets is attractive is because their prices are down. Consequently, the amount of money one can generate by investing in them, also known as an investment yield, is higher.

“It’s uniquely attractive,” Toll said.

Toll added that investing in core capital assets is also attractive because these assets often have return characteristics that are “above the world of traditional infrastructure”. Most investors in traditional infrastructure, or existing infrastructure assets such as toll roads, typically expect a net internal rate of return between 10 percent and 12.5 percent, according to a recent survey of infrastructure investors by placement agent Probitas Partners.

Alterna believes it can achieve an internal rate of return of 20 percent and a 10 percent cash return, Press said. “We’re seeing deals significantly in excess of this,” he added.

In October the firm purchased a 43 percent interest in a coal-fired power plant in Arizona, the first deal from its fund.

“You will probably see us doing a little bit more in power, but we have several other types of surface transportations in play,” Toll said, pointing to the rail and shipping sectors in particular.

Toll, Press and managing partner Roger Miller co-founded the firm in 2007 along with Jim Furnivall, a former venture capital investor with Canaan Partners. The three of them had previously invested in core capital assets at Citigroup.

Alterna started raising the fund in the middle of last year. CP Eaton partners acted as their placement agent.