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Alternative investment

AMP Capital’s $6.2 bn infrastructure fund raises $1.2 bn from Korea

Nov 18, 2019 (Gmt+09:00)

Twenty-four South Korean institutional investors, including the National Pension Service, the Korean Teachers’ Credit Union and the Public Officials Benefit Association, have committed approximately $1.2 billion to AMP Capital’s new infrastructure debt fund which raised $6.2 billion at the final close in October.

AMP Capital Infrastructure Debt Fund IV invests in mezzanine debts on infrastructure assets in North America, Europe, Australia and other developed countries with a 10-year term, including a four-year investment period, according to investment banking sources earlier this month.

Its target yields are 7-8% per annum after management fees and currency hedging costs, lower than around 10% set for its predecessor fund, but above 4-5% for equity investments on real estate in developed markets, the sources added.

The debt strategy includes the final close of the $4 billion fourth fund, $1 billion co-investment rights and $1.2 billion separately managed account commitments, the company said in October.

The portion for South Korean investors was increased to $1.2 billion from the original $700 million, with the fund size ballooning to $6.2 billion, surpassing its hard cap of $4 billion.

In total, the fund attracted 86 investors from 14 countries with strong demand from Korea, Japan, Canada and the UK, according to the company’s statement.

Of the South Korean portion, $770 million was secured through Seoul-based KB Asset Management Co. Ltd., with the other $430 million raised directly by Australia-based AMP.

It is AMP Capital’s largest closed-end fund to date and one of the biggest fundraise for an infrastructure mezzanine debt strategy.

“It attracted many investors because private debt funds, generating cash flows from interest and dividend payments every month, are faster in the retrieval and have lower uncertainty than private equity funds which realize most of their returns from the exit,” said one of the sources.

In particular, insurance companies showed strong interest in the new fund because of the lower risk coefficient applied to private debt funds than for equity investment in the calculation of their risk-based capital ratios.

“Comparing to commercial real estate, infrastructure has significantly lower default ratios. Given the tightened regulatory requirements on investment not only for insurance companies but for domestic institutional investors, we are leaning towards safer assets at the expense of returns slightly,” said a local insurance company executive in charge of alternative investment.

But market speculation in Korea is that the new fund might chase riskier assets, given their high target yields. Further, fundraising for numerous infrastructure projects in developed markets tend to be completed with only equity and senior tranches, without a mezzanine debt.

In 2017, Korean institutional investors committed $260 million to AMP Capital’s Infrastructure Debt Fund III which raised $2.5 billion.

By Jung-hwan Hwang

(Photo: Getty Images Bank)

Yeonhee Kim edited this article

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