25
may
2014
infrastructure
investor
SPECIAL FEATURE
for US pension Fresno County Employ-
ees’ Retirement Association, seen by
Infrastructure Investor
, GSIA is indeed
said to target “alpha assets” – defined
as “core, existing, mature infrastructure
assets” worth over $2 billion. The docu-
ment says the platform targets returns of
9 percent to 12 percent gross IRRs, with
yield of 7 percent to 9 percent.
“The thinking was that you could get
superior returns from the largest trans-
actions because it was less of a crowded
space,” recalls an industry insider briefed
on the platform.
Another stated advantage of GSIA’s
offering is the promise to deploy large
chunks of capital in one go. For cash-rich
but resource-constrained pensions, this
strategy helps address amajor headache:
how to meet relatively large infrastruc-
ture allocations without yet having deal-
making capabilities.
“Once youwork out howmany airports
there are, and how many people it takes
to do the due diligence and get the deal
executed, it only makes sense for these
investors to be deploying capital north
of $500 million. Because otherwise they
can’t get their capital deployed within
the time frame they’ve set themselves,”
explains an adviser to large institutions.
It helps that Borealis is not a new-
comer in the space. As a top executive
with knowledge of the fundraising pro-
cess explains, the unit’s track record
in buying and managing large assets is
another selling point for would-be mem-
bers of the Alliance.
FEE THINKING
A further perceived upside of the plat-
form is set out by observers in more pro-
saic terms. “The offering is seen to be
fairly cheap, and that’s a bit of a carrot,”
says a fund manager.
An industry insider says the platform
was originally marketed at 50 basis points
(bps) – a figure also cited in the Fresno
memo – which he qualifies as “amaterial
fee saving” against closed-ended funds
and other opportunities for limited part-
ners (LPs) to put their money to work.
With less money going into manage-
ment fees, Alliance members can argu-
ably afford to spend more for each asset
without compromising on their return
target. “You can probably outbid your
competitors a little bit because there’s not
as much drag on performance through
the fees,” comments a fund adviser.
Beyond transactional matters, GSIA is
seen by a number of would-be members
as offering a strong alignment of interests.
“I feel much more comfortable investing
with a public plan as my partner than
an investment bank,” says an executive
at a participating institution. “Clearly a
public plan’s issues are similar tomine. In
terms of being able to provide members
with pensions and dealing with funding
requirements, we see eye to eye.”
Another key differentiating feature
may have pleased those growing weary
of blind-pool vehicles: contrary to its
closed-ended peers, GSIA has an ‘opt-in’
structure, whereby all members of the
Alliance can choose to participate or not
in the deals put forward by Borealis.
REALITY CHECK
Despite undeniable strengths on paper,
however, the Alliance is seen by some as
struggling to meet its lofty ambition.
True, a source comments, the plat-
formpulled “a big catch” last March when
it pocketed a large cheque from Japan’s
Government Pension Investment Fund
(GPIF) – which, at $1.3 trillion of assets
under management, is the world’s larg-
est pension fund – along with a similar
commitment from the Development
Bank of Japan (DBJ). The pledges had
a combined value of $2.5 billion.
GSIA already counted three other
LPs: Mitsubishi Corporation, Japan’s
Pension Fund Association and Mizuho
Corporate Bank, each of which had also
pledged $1.25 billion.
Yet the platformonly reached its first
close in April 2012, which at $7.5 billion –
comprising $5 billion fromOMERS – still
left a lot of ground to cover. “It’s taken a
long time to come together,” comments
an adviser to global funds.
And while fresh commitments have
since bulked the total up to $11.25 billion,
the vehicle remains some distance away
from its original target.
This may help explain current plans
to source additional liquidity via McMor-
gan Infrastructure Fund, a feeder vehicle
aiming to collect $1.25 billion. The fund
brings a different profile of investors to
the platform, being mostly subscribed
to by small US pension funds looking to
gain exposure to global deals.
Slower fundraising than expected
may also have prompted GSIA’s spon-
sors to lower the final target, a source
says. The vehicle is now expected to close
in the first half of 2014 on between $12
billion to $13 billion.
DEAL BREAKER
Part of the problem may be that GSIA
has yet to provide real visibility on its
deal pipeline.
“We hear from some of our investors
and from some other people who track
it that deploying capital has been a chal-
lenge for them. So they are under a lot of
“The thinkingwas
that you could get
superior returns for
the largest transactions
because it was less of
a crowded space”
