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UBS Raises $1.5 Billion Infrastructure Fund

NOVEMBER 3, 2008, 7:34 AM

UBS has raised more than $1.5 billion for a long-term infrastructure investment fund, as the firm seeks to tap into the still-popular sector, The Financial Times reported.

The Swiss bank’s global asset management unit said that the capital exceeded its target, and had a minimum investment period of 15 years.

Many firms are betting that infrastructure investments, which lease structures like bridges and toll roads from cities and states, will survive the diminished debt markets. Worries about the borrowing needed to finance the biggest projects have tarnished field’s appeal, The F.T. notes.

But executives are still willing to gamble that investors still find the steady fee generation attractive.

“Infrastructure is not like private equity; this is more like a stable fixed income investment with a warrant, giving you ownership exposure, on top,” Steve Jacobs, head of infrastructure asset management at UBS, told the newspaper. “In these turbulent times, investors are increasingly looking for stable, uncorrelated, inflation-resilient long-term returns.”

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UBS fund raises $1.5bn
By Jennifer Hughes
Published: November 3 2008 02:00 | Last updated: November 3 2008 02:00
UBS has raised more than $1.5bn (£930m) for a long-term infrastructure investment fund and plans another offering for next year in a move that underlines the sector’s relative resilience to the financial crisis.

The bank’s global asset management division said that the committed capital it raised was more than its original target and involved a minimum investment period of 15 years.

Infrastructure funds were one of the success stories of the boom years, but worries about the debt needed to fund the biggest projects, and the leverage already taken on by funds, have tarnished the sector’s appeal.

There has also been criticism of opaque practices in listed infrastructure funds.

Last month, both Macquarie and Babcock & Brown, the Australian banks that pioneered the listed model, tightened their corporate governance rules for the funds in response.

Pension funds and other investors such as insurers are still positive about infrastructure investments. They tend to seek long-term investments that more closely match their future liabilities than short-term equity investments do, and they do not need to be immediately able to realise cash.

“Infrastructure is not like private equity; this is more like a stable fixed income investment with a warrant, giving you ownership exposure, on top,” said Steve Jacobs, head of infrastructure asset management at UBS.

“In these turbulent times, investors are increasingly looking for stable, uncorrelated, inflation-resilient long-term returns.”

The fund is targeting a relatively high internal rate of return of between 10 and 13 per cent a year and says it is currently returning 13 per cent.

Its investments will focus on established infrastructure in stable, well-developed countries, which often operate as virtual monopolies and generate a lot of free cash flow.

Mr Jacobs said the new fund would invest directly in companies and projects. It has already taken stakes in Northern Star Generation, a US power generation business, UK-based Southern Water and Saubermacher, a European waste management company.

The $1.5bn raised was just above the fund’s top target but well below the amounts needed to fund the largest infrastructure projects.

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Infrastructure debt study upbeat

By Chris Hughes

Published: October 31 2007 22:11 | Last updated: October 31 2007 22:11

The global banking system has $38.5bn of unsyndicated infrastructure debt on its books but should be able to distribute it within the next six months, according to research published on Thursday by the Infrastructure Journal.

The upbeat assessment of the infrastructure financing market comes less than two months after Standard & Poor’s, the credit rating agency, warned that banks would struggle to syndicate an estimated $34bn of what it called “paralysed” infrastructure financing. S&P recently revised its data and now estimates that $28bn remains stuck on bank balance sheets awaiting distribution.

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The global banking system has $38.5bn of unsyndicated infrastructure debt on its books but should be able to distribute it within the next six months, according to research published on Thursday by the Infrastructure Journal.

The upbeat assessment of the infrastructure financing market comes less than two months after Standard & Poor’s, the credit rating agency, warned that banks would struggle to syndicate an estimated $34bn of what it called “paralysed” infrastructure financing. S&P recently revised its data and now estimates that $28bn remains stuck on bank balance sheets awaiting distribution.

“We take a sceptical view of dire reports of the current and future position of infrastructure debt,” said Vander Caceres, analyst at IJ.

The unsyndicated financing supports 40 transactions and compares with the $81.6bn of infrastructure debt that has been syndicated this year, covering some 141 transactions, according to the journal, which compiled the data.

Most of the debt will be offloaded by the end of the first quarter of 2008, IJ said. Deals that have not yet been syndicated, or where syndication is ongoing, include Saur, the French water group bought by a private-equity consortium including Axa and CDC earlier this year, and Budapest airport, bought by BAA nearly two years ago.

“Core infrastructure – traditional project finance – has indeed been affected by the summer of discontent in the credit markets that is continuing today. But as the year draws to a close, the infrastructure financing market remains, if not the perfect picture of health, then certainly an image of resilient well-being,” said Mr Caceres.

He added that most unsyndicated infrastructure debt would be sold via general syndication, although banks were adopting methods that had been more associated with equity and debt capital markets transactions.

These included teeing up sub-underwriters before transactions were announced, and “pre-marketing” deals by sounding out potential investors to gauge the level of likely demand.

Take-and-hold deals, which involve banks buying debt themselves, totalled $24.8bn in the first nine months of the year. A further $9bn of infrastructure financing had been raised via bonds, bringing total infrastructure debt financing to $154bn at the end of September, IJ said.

Copyright The Financial Times Limited 2007