EQT Beats Estimates as $4.2 Billion Raised for InfrastructureNiclas Rolander and Niklas Magnusson
Raises 4 billion euros versus initial target of 2.9 billion
Commitments double the amount of previous infrastructure fund
EQT Partners raised 4 billion euros ($4.2 billion) for its third infrastructure fund, almost 40 percent more than targeted, amid growing demand from pension funds that are struggling with near rock-bottom interest rates.
EQT had targeted raising 2.9 billion euros and amassed the capital in less than six months, the fastest fund raising in its history. It’s more than double the size of EQT’s second infrastructure fund and will allow EQT to make 12 to 15 deals of between 200 million and 500 million euros, Deputy Managing Partner and Head of Real Assets Lennart Blecher said.
Pension funds and asset managers have increasingly turned to assets such as energy, transport and communications networks after central banks slashed rates to boost growth and inflation. At the same time, governments are seeing difficulties in finding funding for infrastructure projects, creating opportunities for private-equity firms.
“Many of these funds can’t meet their long-term return requirements so they’re reallocating to alternatives,” Blecher, the investment adviser to EQT Infrastructure III, said in a phone interview. The biggest demand is for infrastructure, which as a long-term asset fits well with meeting the liability side on the balance sheets, he said.
The fund targets a gross return of 15 percent, the same as for EQT Infrastructure I and II, he said. The return on the eight exits the first and second funds have made so far has been almost 35 percent, he said.
Investors in the new fund include BlackRock, The Dai-ichi Life Insurance Company, Danica Pension, Ilmarinen, Skandia, Maine Public Employees Retirement System, The New York City Retirement System, Teacher Retirement System of Texas and Virginia Retirement System.
“The other factor is that we’re heavily under-invested in infrastructure, both in North America and Europe,” Blecher said. “We haven’t invested enough since the 1980s basically, so the gap is enormous, and that can’t just be financed through increased taxes and borrowing.”
The European Investment Bank forecasts that the annual investment gap in the European Union alone is some 300 billion euros. In the Nordic region, infrastructure investor Infranode sees investment needs of at least 200 billion euros over the next 10 years.
But competition for those assets is increasing. For example, Infranode is challenging private-equity firms, which are typically invested in assets for 3 to 7 years before exiting, in the Nordic region with an investment horizon of 25 years. It claims that will give it an advantage as local municipalities seek long-term commitments.
Blecher says the industrial heritage of EQT gives it an edge. The firm was co-founded in 1994 by the Swedish Wallenberg family’s holding company Investor AB, which holds stakes in companies such as power-grids maker ABB Ltd. and mobile-networks maker Ericsson AB.
“We have an industrial heritage,” said Blecher, who worked at ABB for 16 years. “We want to focus on buying assets where we can employ the industrial network of companies such as ABB and Ericsson, which have built the world’s energy and telecom infrastructure.”
Rather than investing in traditional infrastructure projects such as toll-roads and bridges, EQT will seeks to invest in assets and companies where it sees scope for operational improvement, using a similar approach as for other private-equity investments. It will invest in companies and assets within communication, transportation, energy, environmental and social infrastructure, he said.
The fund has already signed four deals, including this week’s agreement to buy Lumos Networks Corp., a U.S. fiber-based data and broadband service provider, for about $425 million in cash.