Dalmore Capital to raise $200 mn from Korea for infrastructure fund

Dalmore Capital Limited, a UK-focused infrastructure investment firm, is set to raise £150 million ($203 million) from four to five South Korean institutional investors, including the Public Officials Benefit Association (POBA) and Hanwha Life Insurance Co. Ltd., for its £800 million ($1.1 billion) fund.

POBA, the $8 billion savings fund for South Korea’s local government employees, will commit around 70 billion won ($65 million) to the blind-pool fund, upon approval by its investment decision committee, investment banking sources said on Jan. 10.

The infrastructure fund may attract additional commitments from other South Korean institutions, according to the sources, as South Korean insurers and pension funds are increasingly piling into infrastructure assets in developed countries for steady cash flows with low volatility.

Dalmore Capital is seeking to raise £800 million to invest in public private partnerships such as bridges, roads and energy grids, principally in the UK. They target long-term assets to hold for 15 to 25 years.

POBA expects the infrastructure fund to generate net IRRs of 8 to 10% per annum, according to Yonhap Infomax report earlier this week.

“Returns of domestic infrastructure assets are just the benchmark interest rate plus 1 to 2% points. On the other hand, UK infrastructure projects guarantee at least 7 to 8% dividend yields to financial investors, so they are very attractive investments,” said one of the sources.

Dalmore Capital will use part of the proceeds from the new fund to buy a stake in Anglian Water Group (AWG), the supplier of water and recycling services in England and Wales.

It has recently agreed to buy a 15% stake in AWG from 3i Infrastructure for around £395 million, in a consortium with GLIL Infrastructure, a joint venture of UK pension funds.

In 2017, Dalmore Capital resold part of its £265 million equity stake in the gas distribution networks of the UK's National Grid Plc. to Hanwha Life and the Korea Scientists and Engineers Mutual-aid Association for £185 million.

Former alternative investment managers of Hanwha Life, involved in investing in the UK gas distribution networks, arranged the investment in Dalmore’s infrastructure fund after they moved to Hanwha Asset in organizational reshuffle.

Founded in 2009, Dalmore Capital is one of aggressive infrastructure funds in the UK, alongside Infra-Red Capital. It launched two investment funds to raise £250 million in 2012 and £500 million in 2014.

The predecessor funds have generated average IRRs over 10%, according to the sources.

Separately, the National Pension Service and other South Korean institutional investors have invested a combined 650 billion won in acquiring a 50% stake in Britain’s High Speed 1 in 2017.

By Daehun Kim

daepun@hankyung.com