Alinda Set To Close Second Infrastructure Fund; Others Struggle

Firm: Alinda Capital Partners LLC

Fund: Alinda Infrastructure Fund II LP

Target: $3 billion

Legal Adviser: Debevoise & Plimpton LLC

Alinda Capital Partners LLC is set to close its second infrastructure fund well above its target as scores of other private equity firms, similarly targeting investments in airports, toll roads and utilities, are struggling to get their partnerships raised.

The New York-based firm is expected announce the fund’s closing on Jan. 31 at “well north” of its $3 billion target, a source involved in the fundraising effort told Buyouts. Executives at the firm declined to comment.

Alinda Capital’s success can be traced in part to timing. The firm raised its first fund in 2006 and 2007, when infrastructure was just gaining popularity in the private equity market, allowing the firm to go out and start to prove its investment thesis. Similarly, the Carlyle Group in November 2007 was able to close a $1.15 billion infrastructure fund. Investors in Alinda Infrastructure Fund II LP include the California Public Employees’ Retirement System, which committed $300 million, and the Alaska Permanent Fund Corp., which pledged $250 million.

The firm’s portfolio includes BAA Ltd., an operator of seven airports in the United Kingdom and Italy, including Heathrow Airport in London; American Roads LLC, which owns and operates five roads and road concessions, including a border crossing tunnel between Detroit and Windsor, Ontario; and South Staffordshire Water plc, a water utility in the British Midlands.

Although it typically takes longer to sell infrastructure investments, Alinda Capital has already logged some partial realizations. BAA, for example, sold off the interests in its Australian airports in 2007 and sold London’s Gatwick airport in 2009. Another portfolio company, SourceGas LLC, sold its Mexican gas utility subsidiary in 2009.

Alinda Capital’s fundraising success comes as many other infrastructure firms are having trouble raising funds, in part because illiquid investments have fallen out of favor with investors during the liquidity crunch. Infrastructure firms raised only $10.7 billion in 2009—a 57 percent drop from the $24.7 billion raised in 2008, and nearly 70 percent less than the $34.3 million raised in 2007, according to Probitas Partners, a placement agency. Twenty five infrastructure funds either abandoned or delayed fundraising in the 18 months ended June 30, 2009, according to trade magazine Pension & Investments.

Among those experiencing setbacks is Kohlberg Kravis Roberts &Co., which reportedly started out seeking as much as $10 billion for its first infrastructure fund in March 2008. That target has plummeted since George Bilisic, an executive at Lazard Ltd. that KKR hired to lead the effort, returned to the investment bank after only a few months with the buyout shop. The firm is now seeking $2.5 billion, according to Preqin. Meantime, The Blackstone Group has been struggling for more than a year to raise $2 billion to $3 billion for its first infrastructure fund, according to placement agents and numerous press reports. The firm reportedly wanted to raise as much as $3 billion to $5 billion when it started.

“For Blackstone and KKR, until 2007 almost everything they touched turned to gold, so in the infrastructure market, where first-time funds are the norm, normally these funds would have raised quickly,” said one placement agent who is not involved in either firm’s fundraising effort. “But as their large buyout portfolios soured along with the values of their publicly traded vehicles, investors were less likely to simply buy the brand name and, I believe, really began to dig into the teams actually investing the money.”

Officials at Blackstone and KKR declined to comment.