The IFC’s new global infrastructure vehicle has announced its maiden water investment. What sets it apart from conventional private equity funds?
The IFC’s new $1.2 billion Global Infrastructure Fund is set to make its first water sector investment later this month, announcing its intention to take an equity stake in Brazilian concessionaire Aegea Saneamento.
GIF will put up $25 million alongside the IFC in a deal that will go before the IFC board on 19 December. The proceeds are intended to go towards the expansion of Aegea’s brownfield concession business, particularly in the less favoured northern and north-eastern regions of Brazil. Aegea’s strategy is to identify existing concessions that are performing poorly and acquire them with a view to improving efficiency.
The GIF deal comes just weeks after Singaporean sovereign wealth fund GIC – an anchor investor in the GIF – announced that it would invest BRL300 million ($129 million) of its own money in Aegea.
The Aegea deal is the third for the IFC’s new fund, which closed in October. It raised a total of $1.2 billion from GIC, nine other sovereign investment vehicles and pension funds, and $200 million from IFC itself. The 12-year closed-end private equity fund will co-invest with the IFC in both infrastructure companies and project SPVs (special purpose vehicles). In addition to the Aegea investment, the fund has made commitments to a telecoms company in Brazil and a port in Colombia.
“GIF co-invests with IFC, which has a strong emphasis on corporate governance, environmental and social standards, as well as a generally rigorous due diligence process,” fund head Darius Lilaoonwala told GWI. “IFC/GIF is able to facilitate the sharing of best industry practices across regions. We hope such shareholder support will help companies like Aegea raise their profile, access diversified funding sources, and enhance shareholder value through improved processes,” he said.
The fact that GIF exceeded its initial fund size target of $1 billion is testament to ongoing strong investor appetite for infrastructure assets. Earlier in October, Global Infrastructure Partners – the biggest player in infrastructure private equity – closed an $8.25 billion second fund.
With so much private equity swirling around the infrastructure space, what is the added value for investors of a fund managed by IFC? “GIF is unique in that it leverages IFC’s footprint in about a hundred countries to access a deal flow that other infrastructure private equity funds would find difficult to source and manage,” explains Lilaoonwala. IFC’s experience will bring particular value in non-BRIC emerging markets.
Despite its strong links with a development finance institution, GIF’s fees match those of other private equity funds. Unlike other infra PE funds, however, investors will know what the fund invests in – and the risk profile of those investments – because of the IFC’s mandatory disclosure obligations: a clear selling point in the frustratingly opaque world of PE funds.
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