Infracapital Partners holds final close on £910m

M&G Investment Management, the European investment management arm of the Prudential Group, has closed its flagship infrastructure fund, Infracapital Partners, on £910 million (€1.2 billion ; $1.4 billion), surpassing the original fundraising target by £160 million.

Infracapital Partners, which was started in 2005 and only began a formal fundraising effort about 15 months ago, is M&G’s second foray into the infrastructure sector. The UK investment manager’s debut infrastructure fund was a £225 million joint venture with infrastructure investor Innisfree, which closed in 2002 and is now fully invested.

Unlike the Innisfree joint venture, which focused on private finance investments, Infracapital has a much broader infrastructure investing mandate.

“It’s a core infrastructure proposition, so our market is really Western Europe-focused and we define infrastructure as three key limbs: essential transport assets, regulated utilities and social infrastructure,” said Martin Lennon, head of Infracapital. Consistent with this, the fund seeks a return range of 10 percent to 15 percent.

Infracapital has been investing in the sector since September 2006, when it successfully bid for a 10 percent stake in Associated British Ports, the UK’s leading port operator, alongside a consortium comprised of Goldman Sachs, Borealis Infrastructure and GIC Special Investments. That deal valued the port operator at £2.8 billion on a fully diluted basis.

Since then, the fund has closed four other transactions and is now about 60 percent invested, Lennon said.

In May, 2007, it won an auction for Red Funnel, the ferry company serving Southampton and the Isle of Wight, in a deal that valued the business at an enterprise value of £200 million.

Infracapital: owner of ABP since 2006

In September 2007, it invested alongside JPMorgan Asset Management in taking a majority stake in Zephyr, one of the UK’s largest wind farm operators. Later that year it has also invested in Meter Fit, a UK-based gas and electricity meter owning business.

Most recently, in February, Infracapital closed a £3 billion take-private of Kelda, the owner of water utility Yorkshire Water, as part of consortium led by Citi Infrastructure Investors. As of June, it held a 19.6 percent stake in Skeldergate Topco Limited, the holding company for Kelda.

Though many of its transactions involve leverage, Lennon said that Infracapital does not hold leverage at the fund level.

The fund is structured as a private equity-style closed end fund which may be extended at the election of the investors, Lennon said. A total of 31 investors are LPs in the fund, mostly public and private pensions, he added.

Lennon joined M&G in 1998. Since then, he has taken the lead in building out its infrastructure activities. In 2001 he was responsible for Prudential Group’s investment in the Macquarie Airports Group and in 2002 he helped fund the Innisfree joint venture.

Since then, he has built up M&G’s infrastructure team, which now includes 15 investment professionals based in London. Among them are managing directors Ed Clarke, Steven Lilley, Mark Chladek and Brandon Prater, all of whom Lennon hired.

Helix Associates, in conjunction with M&G, acted as placement agent for Infracapital.