Swedes Keen on Greenfield Infrastructure

    Stockholm (NordSIP) – On 15 November, UK-based Infracapital announced the closing of its new greenfield infrastructure fund at £1.25 billion (€1.4 billion), with the investment from Swedish investors, among which AP1, one of the Swedish state’s buffer pension funds. In total, Swedish investors stand for 15% of the commitment in Infracapital’s new fund, corresponding to approximately SEK2.1 billion (€210m). The capital raised was well in excess of the £1 billion stated target, and in line with the firm’s internal hard cap. The fund is the firm’s fourth closed vehicle and takes the firm’s total assets under management to more than €4 billion. Infracapital is part of M&G Investments, the European investment management arm of London-based life insurance and financial services company Prudential plc.

    “There was strong interest overall from institutional investors across Europe, and particularly here in Sweden,” says Robert Heaney, M&G Nordic Region Director in an interview with NordSIP. One of the reasons for the high demand was is the unique offering of a pure greenfield fund. Greenfield infrastructure refers to investments made in entirely new projects, as opposed to brownfield, which qualifies projects that are already operating. As Heany explains, “there have been a number of high profile auction processes around lately, where brownfield assets were sold to private investors at very rich prices.” In general, institutional capital is chasing infrastructure assets, and the competition for deals and sourcing of quality assets is tough, particularly in certain sectors. “Returns on brownfield assets are under pressure, particularly for the larger deals. They now offer returns around eight percent, even if returns from the mid-market and more complex brownfield transactions are still higher,” Heaney says.

    In the case of greenfield projects, the return profile can be more attractive, Heaney explains. “When you are building assets, the element of risk is slightly different. You are investing at cost, and if you’re willing to take the risk of going through a project’s development, the potential reward is higher.”

    The political backdrop also plays a role. “There is a huge demand and need for infrastructure assets globally and particularly in Europe where our focus is,” adds Heany. “The European Commission Investment Plan, commonly referred to as the Junker Plan, is supposed to unlock €315 billion in infrastructure investments. According to the OECD data, 75 percent of the global infrastructure that will exist in 2050 has not yet been built. Private investments will play a crucial role in this expansion.”

    Many of these investments are needed by society to fulfil basic needs. The first transactions of Infracapital’s new greenfield fund attest to the type of projects that can help communities: “We have invested in a waste energy plant, a rural broadband asset bringing fast internet to rural communities, solar energy and hospitals. There is an impact side in our fund, as we are helping to fulfil society’s needs, with exposure from the UK to Poland, passing by France and Italy.” Currently, the fund has not added any Nordic projects yet but is actively looking to add some. Infracapital already owns two brownfield projects in the Nordics, and the mother company M&G has invested €600m in Nordic real estate, including office properties in Stockholm.

    “Sustainable investment criteria are definitely not an afterthought,” continues Heaney. “Speaking about Swedish investors, which are the ones I am the most familiar with, ESG has gone beyond a ticking-the-box exercise. M&G has also launched an impact lending fund on the private debt side as well as an ESG high yield bond fund, and we have met strong demand for these products. There was a very detailed process, looking at ESG in all the investments.” Infracapital, therefore, faced a high degree of scrutiny for its new greenfield fund, from AP1 as well as from the other Swedish institutions that came on board. An early investment from the European Investment Bank (EIB) for which sustainability is a critical component in the investment process may have prepared the team for those tough questions.

    Picture © M&G Investments


    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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