Infrastructure, Small Funds Find Friend In Alaska

Infrastructure funds have found a big supporter in our northernmost state, as the board of the $39 billion Alaska Permanent Fund Corporation late last month approved pledges to the second funds of GS Infrastructure Partners and Alinda Capital Partners.

The Alaska Permanent Fund’s board also approved an additional $400 million allocation to private equity gatekeeper Pathway Capital Management to create a “fund of one,” in which the Permanent Fund is the only backer. The money is earmarked for small and mid-market private equity funds that invest in companies with enterprise values of under $1 billion. Currently Alaska’s private equity portfolio focuses on funds that invest in companies larger than $1 billion.

The $39 billion Alaska Permanent Fund committed $500 million to Goldman Sachs Infrastructure Partners II fund and $250 million to Alinda Infrastructure Fund II. The limited partner, whose target allocation to private equity is 6 percent, has now committed $1.6 billion to the asset class. With $700 million of that drawn down, the investor remains well beneath its $2.3 billion goal.

GS Infrastructure Partners, a division of Goldman Sachs, intends to raise $7.5 billion for GS Infrastructure Partners II. The firm closed its first infrastructure fund in January of this year with roughly $6.5 billion, with plans to invest it in toll roads, airports and ports, as well as regulated gas, water and electrical utilities. Fund II is earmarked for mature transport and utility opportunities in North America and Europe. Goldman Sachs seeks a gross IRR of between 10 and 15 percent.

The firm is going out of its way to encourage big commitments to the fund. It intends to charge a 1.5 percent annual management fee to investors that commit under $100 million, according to Dow Jones’s Financial News Online, but just 1.25 percent fee for those committing from $100 million to $250 million. Investors pledging more than $250 million will pay a 1 percent fee. For investments above $500 million, the fees are negotiable. The firm also charges a 20 percent carry fee after an 8 percent hurdle has been reached, according to Dow Jones.

Alinda Capital specializes in investments in public sector and energy infrastructure assets in North America and Europe. The City of Cincinnati Retirement System committed $65 million to Alinda Infrastructure Fund II in late 2007. The $9.4 billion New Mexico Educational Retirement Board approved $50 million to Fund II in June of this year, and the Washington State Investment Board pledged $400 million to Fund II, also in June. Alinda Capital held the final closing on its $3 billion Alinda Infrastructure Fund I in June of 2007.

In other news, the Alaska Permanent Fund’s CIO, Richard Shafer, plans to retire this month. As of July 3, about 15 applications had been received for the position. The salary range is $200,000 to $300,000, although the board has agreed to be flexible to avoid turning off prospective candidates, according to recent board meeting minutes.