I Squared Raises $7 Billion for Infrastructure Investments

(Bloomberg) -- I Squared Capital, an infrastructure-focused private equity firm founded by former Morgan Stanley executives, has raised $7 billion for its second fund, exceeding its original target as competition for investor capital heats up.

The fund, known as ISQ Global Infrastructure Fund II, will make equity investments that average $300 million for energy, utilities, transport and telecommunications deals around the world, according to Chief Investment Officer Sadek Wahba. There's one restriction: no more than one-third of the fund can be invested in countries that aren't in the Organization for Economic Cooperation and Development. Non-OECD countries include India, Guatemala and El Salvador.

“We're never hostage to a particular market or sector,” Wahba, who co-founded I Squared in 2012, said in an interview.

The fund raised more than its $5 billion goal in part due to its flexible mandate, he said. Its track record -- or the fact that its $3 billion first fund delivered gross annualized returns of 23 percent as of June 30 -- has helped too.

The fund, with its 10-year lifespan, is already about a quarter invested in assets such as TIP Trailer Services, a trailer-leasing business that was acquired from China's embattled HNA Group Co. and Hutchison Global Communications Investment Holding Ltd., a fiber-optic network in Hong Kong. Wahba expects I Squared to find no shortage of opportunities. That's in part due to its penchant for growing businesses, often by building or developing new assets.

Institutional investors are clamoring to jump into infrastructure. Stonepeak Infrastructure Partners in July raised $7.2 billion for its third pool and KKR & Co. said it expects to close its third infrastructure fund at $7 billion by the end of September. Carlyle Group LP and Blackstone Group LP are also at various stages of fundraising.

Yet for all the interest in the space, global infrastructure deals this year are on pace to reach the lowest level since 2013, according to data provider Preqin.

The capital raising comes as President Donald Trump's administration has yet to move ahead with its infrastructure plan. Wahba said individual states should come up with their own plans and seek support from the federal government for any funding gaps. A broad-based federal plan that provides incentives -- a feature of the one proposed earlier this year -- won't necessarily spur states into action, he added.

By next year, I Squared is planning to move its global headquarters from New York to Miami, where it will benefit from the state income tax exemption and low property taxes. Wahba and co-founder Adil Rahmathulla have already relocated to Miami, a move that occurred in part because of courtship from Florida officials, Bloomberg News reported in June. Another co-founder, Gautam Bhandari, has also moved there from Singapore.

“Of course there's a tax component to it, but that wasn't our primary motivator,” said Wahba. While I Squared considered other U.S. cities such as Austin and Palo Alto, Miami was the “natural choice” because of its proximity to Latin America, he said, citing the firm's investments in countries such as Peru, Chile and Argentina.

I Squared's investors include Danish pension fund PKA, the West Yorkshire Pension Fund and Australia's LGIAsuper as well as U.S. pensions Washington State Investment Board, New York State Common Retirement Fund and the Texas Municipal Retirement System.

Read more on the infrastructure boom and how fundraising is outpacing deals

To contact the reporter on this story: Gillian Tan in New York at gtan129@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net, ;Margaret Collins at mcollins45@bloomberg.net, Melissa Karsh, Alan Mirabella

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