06/02/2010

Firm Rounding Up Infrastructure Managers

Capital Innovations has received about $1 billion of commitments from clients interested in investing in infrastructure projects, and it is now vetting fund managers capable of putting the money to work.

The word is that clients have told the Hartland, Wis., firm that they're willing to pledge $800 million to $1.2 billion to what the firm is calling a customized separate account. The plan resembles a fund of funds, except that the commitments are less formal and the money might be used to co-invest alongside fund managers.

Capital Innovations is about to solicit information from fund managers interested in investing money on behalf of the planned separate account. The firm wants to assemble a group of funds whose infrastructure investments are diversified by geography and other characteristics. It hopes to include fund operators focused on projects in emerging markets and in the developed world, across an array of industry sectors. The managers could specialize, for example, in infrastructure projects in the transportation, communications, utilities, energy, alternative energy or environmental sectors.

Fund managers will have until June 24 to respond to Capital Innovations' "request for information."

The firm is expected to indicate in its request that it would favor fund managers with creative fee structures. Capital Innovations will consider shops raising money for their first vehicles, and wants the ability to co-invest in deals alongside the managers.

It's unclear which investors will be participating in the customized separate account, but the firm has worked with Calpers, Fidelity Investments, TD Bank and a handful of large Asian asset managers.

That planned pool of capital is separate from an infrastructure fund that Capital Innovations began putting together in late 2008. Capital Innovations will be investing that fund, which in a matter of months completed a first round of fund-raising with more than $200 million and is still in the market. The firm set an initial target of $500 million for that vehicle.

Capital Innovations, led by founder and chief investment officer Michael Underhill, is responding to what it sees as renewed interest from investors in infrastructure investments. More attractive valuations, along with the need to balance risk in their broader private equity holdings, have prompted some investors to take a fresh look at infrastructure, which in the past has been viewed primarily as a low-yielding, safe investment.