Multi-boutique asset manager Fiera Capital Corporation runs c. USD 124 billion as of 30 September 2019. The firm has its foundations in actively managed equities and fixed income but has over the past five years built up a strong presence in alternatives spanning real estate, private equity, private debt, agriculture, and infrastructure. The infrastructure business, Fiera Infrastructure, runs c. CAD 1.8 billion (USD1.4 billion) from three offices in London, Toronto, and New York. The 22 strong infrastructure team work together, formally and informally, on pipelines, prospects, origination, execution, asset management and investor reporting.
“A global perspective lets us evaluate the relative risk-adjusted returns of similar infrastructure projects in different countries on a common basis. For example, renewables is a huge sector where we compare the value equation of return and risk on a global basis. We find renewables in Europe can have too much merchant risk, and power price risk, as power purchase agreements (PPAs) are rather short lived versus asset lives. We prefer projects in the US and Canada where there are longer dated off-takes, and counterparties tend to be government owned entities in Canada or shareholder owned utilities in the US. There is also increasing scope to enter into PPAs with corporates”, says Fiera Infrastructure President, Alina Osorio, who heads the global business from Toronto. She previously developed the Aquila Infrastructure business, which formed a joint venture with Fiera Capital Corporation in 2016 to create Fiera Infrastructure. She was earlier CEO of Macquarie Essential Assets Partnership, North America’s first unlisted infrastructure fund. Fiera Infrastructure’s renewables investments include wind farm Cedar Point II in Canada; solar/wind generation portfolio, Desert Sky LP; and hydroelectric assets.
Some global infrastructure investors are doing deals worth tens of billions, but Fiera Infrastructure is focused on the mid-market: defined as equity below USD 250 million or an enterprise value below USD 1 billion. “The mid-market can offer higher returns than large cap and mega cap infrastructure, where greater competition drives up the prices of trophy assets such as leading airports. There is potential to source deal flow through networks and negotiate terms rather than participating in auctions. Mid-market assets are also easier to grow organically”, says Jason Cogley, who heads the London office and formerly worked for Standard Life private markets.
Within the mid-market, Fiera Infrastructure forages from a broad spectrum of deal-flow, across energy, PPP, telecom, transport and utilities. The manager balances “core” deals that provide more yield and less capital growth with “core plus” deals that offer higher growth and lower yield. The typical split could be 60% or 70% core and 30% or 40% core plus deals. All investments are generating free cashflow, though occasionally it may be temporarily reinvested into building out a business, such as fibre optic cables, rather than immediately distributed. The target yield is roughly 4-6% per year. Historical net IRRs since January 2016 have been in high single digits, enhanced by some project level leverage*.
Many mid-market players looking at these types of deals are regional specialists. “Very few players combine a mid-market focus with global coverage”, says Osorio. The geographic purview is OECD developed markets, and in practice mainly North America and Europe, with Australia and New Zealand the most distant markets. Fiera Infrastructure can contemplate doing deals in South American markets such as Chile, which has a long history of offering investors a stable and predictable regime of structured governance and judicial oversight, and is reviewing opportunities in Mexico and Columbia, which became the 37th OECD member in 2018.
A few case studies show how Fiera Infrastructure has identified unique assets that would not have shown up on the radar screens of many rivals.
Within the telecoms sector, Fiera Infrastructure looked at data centres, towers and fibre before deciding to focus on two fibre investments – in the US and Spain. “Fibre networks serve society’s insatiable demand for data, data transfer and broadband. In the US, we own an equity stake in Conterra Ultra Broadband Holdings, Inc (Conterra), which has more than 11,000 miles of fibre in 35metro areas and is broadening out into enterprise sales as well as internet connectivity for schools, which is being encouraged by the US Government. We are happy to reinvest free cashflow given the high growth as we expect payback of capital investments within an average of 2.5 years”, says Osorio.
“In Spain’s highly deregulated fibre market, we own IslaLink, which provides backbone infrastructure connecting Valencia with the Balearics, selling to telecoms carriers such as Orange, Vodafone, Masmovil, BT and internet service providers, not end users. As such, being the only independent neutral provider, this makes us an attractive supplier. We also ha