Lend Lease charts expansion into infra fund management

The property developer has hired former Merrill Lynch managing director Duncan Taylor to build a fund management platform in Australia, where Lend Lease recently acquired Bilfinger Berger’s Australian business and has teamed up with a group of former Babcock & Brown pros to source deals.

Lend Lease is eyeing an expansion into infrastructure fund management and has already made a key hire to lead the charge, a senior executive at the Australian property developer told sister publication Infrastructure Investor.

Former Merrill Lynch Managing Director Duncan Taylor joined the firm in late April as head of infrastructure funds and mandates, Tarun Gupta said in an interview. Taylor, who helped build out Merrill Lynch’s infrastructure fund business while he was at the investment bank between 2007 and 2009, will be responsible for developing a similar “third-party capital model” for Lend Lease in Australia, Gupta said.

That means creating fund products for institutional investors, such as pensions and superannuation funds, to enable them to participate in infrastructure deals sourced by Lend Lease. The company already does this in its real estate investment management division, which manages about A$11 billion (€8.2 billion; $11.6 billion) from 160 clients across 11 unlisted funds, Gupta said.

“That’s the model we have in real estate and a similar asset management model that can be applied in the infrastructure space,” Gupta said, pointing to one fund Lend Lease has already launched in the UK. In December, Lend Lease seeded a UK-focused social infrastructure fund with Dutch pension PGGM, raising £220 million (€252 million; $356 million) at the outset.

Lend Lease isn’t the only large developer to notice the attractiveness of this business model. Last November, John Laing, a large UK developer, raised £270 million for an infrastructure fund that subsequently bought a portfolio of 19 operational infrastructure projects John Laing had developed in recent years. Fellow UK developer Balfour Beatty has also launched a £750 million infrastructure fund.

Gupta said it was “too early to tell” whether the newly-appointed Taylor will focus on developing listed or unlisted infrastructure fund products. He will first meet with Lend Lease’s institutional clients and “see what their needs are”, Gupta said. However, Taylor will initially focus on developing fund products in the Australian market, where Lend Lease has been actively building up its infrastructure capabilities.

In March, Lend Lease acquired the Australian division of German infrastructure developer Bilfinger Berger for A$1.06 billion. The deal broadened Lend Lease’s construction capabilities into the infrastructure sector by handing it control of two Australian engineering and construction companies – Abigroup and Boulderstone – as well as infrastructure asset maintenance provider Conneq.

Lend Lease has also been building out its infrastructure deal sourcing capabilities in Australia. In 2009, the company teamed-up with a group of former Babcock & Brown executives to form Capella Capital, a Lend Lease subsidiary that bids on public-private partnerships in Australia and New Zealand.

Gupta, the Lend Lease investment management head, said Taylor’s infrastructure funds group will be able to invest in greenfield, or new construction opportunities, sourced by Capella. “Capella is our origination arm,” Gupta said, adding that Taylor’s group will also be free to purchase existing infrastructure assets, known as brownfields, as they come to market.

Capella Managing Director John Bowyers, who headed up Babcock & Brown’s Asia Pacific infrastructure team prior to the investment bank’s collapse in March 2009, said his team’s goal is “to place Lend Lease in infrastructure” in Australia, where he believes there s a lot of opportunity for the company to “build a business of scale”.

Capella also has been scaling its team to meet that opportunity. In March, the firm hired Malcolm Macintyre, the former head of Babcock’s North American transport and social infrastructure, to help bid on public-private partnerships.

Macintyre, who now serves as a director at the Melbourne- and Sydney-based firm, said Capella currently is pursuing 10 to 12 projects and “working hard” at building a further pipeline of opportunities. He’s optimistic the pipeline will materialise because Australia is in the midst of a resource boom that will reverberate through the economy and fuel a need for all kinds of infrastructure.

Australia’s real gross domestic product, a broad measure of economic activity, grew 3 percent in 2010 and is projected by the International Monetary Fund to grow 3.5 percent in 2011, according to a government fact sheet. “The growth that’s occurring, and hence the need for further construction, tells a very bright story for the space going forward,” Macintyre said.