city of baltimore fire & police employees’ retirement …€¦ · nepc, llc infrastructure...

• NEPC recommends the following investment pacing model to achieve the target allocations:

– 2019: Committed $30 million to a LaSalle Income & Growth Fund VIII; commit $40 million to a diversified real assets fund(s) and redeem $20 million from core real estate

• NEPC has provided four managers that have been profiled in the book to be interviewed as finalists

– Landmark, Private Advisors, Brookfield and JLC

• NEPC recommends two managers be selected for the 2019 diversified real asset fund mandate, each receiving ~$20M

– Landmark or Private Advisors

– Brookfield or JLC

• Landmark and Private Advisors are both multimanager real asset strategies focused primarily on investing through secondaries and co-investments

– Landmark will have a infrastructure focus

– Private Advisors will focus across the real assets spectrum (e.g. energy, infrastructure, metals and agriculture)

• Brookfield and JLC are both high quality infrastructure funds

REAL ASSETS PLAN RECOMMENDATION

2

• “Real assets” refers to the ownership of a hard asset and/or access to a natural resource

– There are many sub-strategies within real assets, and most can be accessed through public or private markets

• Hard asset sub-strategies can include:

– Real Estate

– Infrastructure

– Timber

– Agriculture

• Natural resource sub-strategies can include:

– Energy (extraction and/or transportation)

– Metals (extraction and/or transportation)

– Commodities

• Real assets are typically included in a portfolio for diversification benefits, to offer a partial hedge against inflation, and/or to maximize total return

– Investor objectives (which vary) can inform sub-strategy allocation targets

– Some investors include inflation-linked securities (such as TIPS) in a real assets portfolio due to the inflation sensitivity

REAL ASSETS

3

• Select opportunities remain for Energy private equity

• Attractive opportunities in Infrastructure and related operating businesses

– Focus on “buy-fix-sell” strategies and managers with operating expertise

– High valuations for large transactions create poor entry points for core exposure

– Higher yielding opportunities may exist in niche sectors (e.g., aviation leasing)

• Improving Metals & Mining fundamentals but implementation is challenged

• Agriculture fundamentals interesting but limited manager universe

• Limited opportunities in Timber given low yields and liquidity

General Market Thoughts

Implementation Views

REAL ASSET MARKET AND 2019 VIEWS

Strategy Outlook Commentary

Energy PositiveContinue to see select attractive private equity opportunities; small players can be more nimble; large allocators can be strategic with acquisitions

Infrastructure (core/non-core)

Neutral/Positive

Continue to find attractive opportunities and a need for capital outside of core assets; favor managers with operating expertise who can drive asset cash flow growth and/or managers targeting yield-oriented niche assets

Renewables Neutral Favorable macro tailwinds supportive, but regulatory risks remain

Metals & Mining PositiveFocus on managers with geological and technical expertise; limited implementation options

Agriculture Positive Slowing appreciation creates attractive entry point; difficult to implement

Timber Negative Less attractive due to low yields and illiquidity

4

NEPC, LLC

INFRASTRUCTURE OVERVIEW

Infrastructure assets are generally defined as physical facilities or networks that provide essential goods or services to a broad range of users

➢ Infrastructure assets may be owned privately or through publicly traded securities

• Infrastructure assets may generate a return through a combination of current income and/or capital appreciation

• Characteristics of Infrastructure Assets

– Long duration assets with stable cash flows typically tied to inflation

– Monopolistic or quasi-monopolistic assets with significant barriers to entry

– Operate in regulated environments

– Capital intensive assets with high replacement costs

• Large infrastructure investable universe

– Over $69 trillion of global infrastructure investment required by 2035

– Over $580 billion of total capital raised by closed-end fund managers since 2005

– Publicly traded infrastructure equities account for over 350 companies globally, with a combined market cap in excess of $3 trillion

• Investments can be made across the asset lifecycle

– Greenfield, brownfield, and operating assets

INFRASTRUCTURE OVERVIEW

6

INFRASTRUCTURE SUB-SECTORS

Transportation

Toll Roads

Bridges

Tunnels

Airports

Seaports

Rail

Energy & Utilities

Renewable Power

Electricity Generation

Electricity Transmission

Water & Waste

Oil & Gas Pipelines

Communication

Wireless Towers

Broadcast Satellites

Cable Networks

Fiberoptic Lines

Social

Education Facilities

Healthcare Facilities

Courthouses

7

Sector Asset FocusHolding Period

Typical Returns

Primary Return Drivers

Transportation

• Toll Roads• Bridges• Tunnels

10-15 years 5-7% Current Income

• Airports• Seaports• Rail & Transport

10-15 years 8-10%Current Income &

Capital Appreciation

Energy & Utilities

• Electric Generation 8-12 years 15-25%Current Income &

Capital Gains

• Electricity transmission and distribution networks

• Water and waste• Oil & Gas pipelines• District energy• Renewable power


Limited Capital Appreciation

Communication

• Wireless communication towers

• Broadcast satellites• Cable networks• Communication towers


Capital Gains

Social• Education facilities• Healthcare facilities• Courthouses


Limited Capital Appreciation

INFRASTRUCTURE SECTORS

8

Note: “Typical returns” are illustrative examples only, actual target or realized returns may vary for all sectors.

Greenfield Brownfield Operating

• Assets requiring development and construction which may introduce operational complexity

• In certain cases development/construction risks can be outsourced to third parties and various structural elements can be introduced to provide a greater degree of revenue certainty

• Assets that are operating and generating cash flow

• Distributions will increase during growth/ramp up periods and level off as an asset matures

• Longer operating histories support more predictable cash flows

• Assets that are operating and generating cash flow

• Steady distributions from revenue generation

• Usage typically grows at approximately the rate of GDP Growth

INFRASTRUCTURE LIFECYCLE

Stable IncomeGrowing Income Prolonged Period Prior to Cash Flow

9

NEPC, LLC

ROLE OF INFRASTRUCTURE IN A PORTFOLIO

GOALS OF INFRASTRUCTURE ALLOCATION

• Stabilized assets generate predicable cash flows meaning a significant percentage of returns can be generated from cash distributions

Income

• Inflation-linked cash flows provide natural hedge to rising liabilities

Inflation Protection

• Low correlation to other asset classes

Diversification

• Attractive total return potential with lower volatility generates attractive risk-adjusted returns and serves as downside protection

Downside Protection

11

• Infrastructure investments fit into an overall portfolio as a standalone allocation or as part of a broader allocation

– Infrastructure

– Real Assets

– Alternatives

– Inflation-Hedging

• Depending on the sub-strategy, some infrastructure strategies share characteristics with real estate and/or private equity

– Similarities to private equity:

• Operationally-intensive

• Portfolio company management team in charge of day-to-day operations

– Similarities to real estate:

• Fees for service are predictable and stable

• Inflation-adjusted revenue streams

• Asset location as a key consideration or advantage

• Some infrastructure investments may also be considered as part of a real estate allocation

– Some infrastructure asset classes are more real estate-like than others; for example:

• Senior Housing (real estate or social infrastructure)

• Data centers (real estate or communications infrastructure)

PORTFOLIO FIT

12

• Infrastructure is not a “one size fits all” asset class; the mix of various risk/return strategies should be customized based on client objectives

• In constructing an infrastructure portfolio there are several key considerations that impact the allocation, including:

– Plan investment policy

– Plan inflation sensitivity

– Allocation to illiquid alternatives

– Liquidity requirements of plan

– Existing infrastructure investments

• A global infrastructure investment strategy may benefit from diversification as various regions are at different points in an economic cycle

– Global managers tend to be large platforms with investment professionals around the world while non-US managers may be more localized in a particular region or country

• However, there are some considerations of investing in infrastructure outside of the US:

– Currency risk

– Geopolitical risk

– Market liquidity risk

– Limited inflation hedge

CONSIDERATIONS

13

• There are several factors to consider when assessing the overall risk and return of an infrastructure investment

RISK & RETURN FACTORS

GeographyCanada, U.S.

Western Europe, Australia

Other OECD Countries

Emerging Markets

Operational Maturity Operating Brownfield Greenfield

Operating Income Stable Income Growing Income Prolonged period

prior to cash generation

Revenue ModelPredominantly contracted or

regulated

Partially contracted or regulated

Dependent on volume and price

Lower Higher

Risk & Return

14

Core RE

Private

Infra. Energy PE

VA & Opp

RE Timber Farmland

Comm-

odities Inflation REITs

Listed

Infra. Stocks Bonds

Core Real Estate 1.00

Private

Infrastructure0.31 1.00

Energy Private

Equity0.30 0.25 1.00

Value-Add &

Opportunistic RE0.80 0.51 0.54 1.00

Timber 0.23 0.35 0.14 0.34 1.00

Farmland 0.05 0.25 0.20 0.28 0.60 1.00

Commodities 0.18 0.31 0.56 0.34 -0.06 -0.09 1.00

Inflation 0.22 0.10 0.33 0.20 -0.19 -0.54 0.55 1.00

REITs 0.17 0.30 0.31 0.36 -0.11 -0.01 0.29 0.15 1.00

Listed

Infrastructure0.13 0.70 0.56 0.44 -0.12 -0.04 0.66 0.32 0.69 1.00

Stocks 0.15 0.49 0.33 0.36 -0.01 0.14 0.24 0.03 0.58 0.83 1.00

Bonds -0.17 -0.17 -0.21 -0.19 0.04 -0.04 -0.11 -0.25 0.02 0.02 -0.42 1.00

DIVERSIFICATION BENEFITS

• Infrastructure is expected to perform differently than other asset classes because of the defensive characteristics of the assets that create more stable cash flow streams

• Private infrastructure has exhibited low correlation to stocks and bonds

– Private infrastructure also has low correlation to other alternative asset classes

Sources: NCREIF, Preqin, Thompson One/Cambridge Associates, Bloomberg. Data as of September 30, 2018.Calculated using 20 years of quarterly returns except for listed infrastructure which has data since 2007 (the earliest available for the index).

15

Type Regulated Contracted Concession (Availability Model) Concession (Tolling Model) Merchant

Description Subject to government regulation, increases for monopolistic assets

Long-term providing pricing protection

Government grants exclusive right to operate an asset and provides fixed “availability payments” regardless of usage

Government grants exclusive right to operate an asset, but revenues are a function of patronage or asset usage

Highly dependent on market pricing

Asset Type • Electricity and Gas Distribution & Transmission

• Water & Wastewater

• Power Generation

• Data infrastructure

• Midstream Networks

• Energy Storage

• Roads• Bridges • Tunnels• Mass Transit• Social Infrastructure

• Toll Roads• Bridges • Tunnels• Airports

• Uncontracted Generation

• Energy (E&P)

Inflation Linkage

Often includes CPI-based price adjustments and expense pass-throughs

Often includes CPI-based price adjustments

Often includes CPI-based price adjustments to availability payments adjustments

Often includes CPI-based toll adjustment; GDP sensitive assets are inherently hedged

Subject to ability to pass along price increases

CASH FLOW & INFLATION PROTECTION

Source: Brookfield

• Infrastructure investments generate cash flows with a positive sensitivity to changes in inflation

• Revenues can be more or less predictable based on the asset’s business model

• The long lives of infrastructure assets should provide a hedge against inflation

• Contractual price escalators or concessions with price inflation-indexed escalators allow income to adjust with inflation

Less Predictable More Predictable

16

Benefits Considerations

• Infrastructure often provides a correlation to inflation and the opportunity for enhanced yield versus fixed income investments

• Infrastructure offers stable returns relative to other investments, while value-add investment offers the chance for higher returns

• Infrastructure investments typically have long term and predictable cash flows. revenue models differ by investment type, but cash flows can be government backed

• Infrastructure offers diversification from other asset classes, it has been shown to have a low level of correlation with traditional investments

• Investments are generally illiquid, particularly during falling markets

• Limited and imperfect benchmarks exist to gauge investment performance for unlisted infrastructure performance

• Valuations methodologies can vary with limited transparency, and asset appraisals can lag real-time market valuations

• Infrastructure assets are operationally intensiveand require active asset management

• Rising interest rates can effect valuations

• The use of leverage can amplify negative performance

PORTFOLIO BENEFITS AND CONSIDERATIONS

• In addition to portfolio considerations (such as liquidity and leverage), there are many market considerations as well:– Commodity prices

– GDP sensitivity

– Geopolitical risk and stability

– Capital market risk (including debt pricing/availability, market volatility, etc.)

• Some infrastructure assets have revenues that are monitored and/or set by a regulatory body, which adds additional risk– Unpredictable regulatory change can impact margins

– Deregulation of a particular market may result in an asset/business losing its status as a legal monopoly and lead to new competition

– Asset managers with extensive operational experience in a particular sector tend to have strong relationships with the regulatory agencies

• This should allow for ongoing dialogue with the regulators, and should result in a better understanding of potential changes to the regulatory environment

• Other risks directly associated with infrastructure investments can include:– The possibility of disruptive technologies

– Environmental risk

– Operating risk

– Legal risk

INVESTMENT CONSIDERATIONS

NEPC, LLC

IMPLEMENTATION

Debt Core Non-Core

Senior DebtSubordinated

DebtCore Equity

Core-Plus Equity

Value-Add Equity

Opportunistic Equity

Target Return 3.5-5.5% 5.5-9% 7-9% 9-12% 12-15% 15-17%

Contracted Revenue

Yes No Yes Yes No Varies

Return Driver IncomeIncome &

appreciationIncome

Income & appreciation

Appreciation Appreciation

GDP Sensitivity Low High Low Low-medium High High

Greenfield vs. Brownfield

Both Both Brownfield Both Both Both

Operational Intensity / Complexity

Low Low Low-Medium Medium High High

MARKET OPPORTUNITY

Source: BlackRock

20

Investment Type

Description Benefits Considerations

Listed Infrastructure

Public market securities with

high transparency and

liquidity

• Immediate exposure

• Easy to access

• Liquid

• Equity market correlations

dampen diversification

benefits

• Overlap with equity

portfolio

Open-End Fund

Private funds with perpetual

lives, functions like core real

estate funds

• Attractive Fees

• Broad Diversification

• Quicker to build portfolio

• Semi-liquid with potential

for entrance/exit queues

• Limited manager universe

• Limited control

Secondary FundBuyers of LP stakes, fund

recap, GP transactions

• Much higher level of

diversification than primary

funds

• Mitigated J-curve effect

• Provides exposure to

multiple vintage years

• Potential look-through

issues

• Limited control

• Double layer of fees

• Limited manager universe

Primary Closed-End Fund

Private equity style funds that

make control investments

over a multi-year investment

period

• Limited to assets acquired

during investment period

• Illiquid

• High fee loads

• Limited control

Direct/Co-Investments/SMA Direct ownership in assets

alongside operator or GP

• Greater control

• Lower fees

• Requires specialized

investment professionals

with governance to allow

for quick investment

decisions

• Less liquid

• Less diversification

INVESTMENT VEHICLE STRUCTURES

2121

Infrastructure offers different investment strategies and vehicle structures with varying levels of liquidity (but not really liquid) and investor control:

• Fundraising, (0 – 2 years)

– The time period that is used by the manager to raise sufficient funds for the strategy.

– Investors make “Commitments” to fund investments over time.

• Investing (years 1 – 5)

– This is time period that managers use to source investment opportunities. The Fund will make investments during the “Investment Period,” generally the first four or five years of a fund’s life.

– Business plans are put into place as the manager seeks to add value. If an investment does not meet expectations the managers will take steps to mitigate the impact of losses.

– Current income may be paid out during the Investment Period (depending on the strategy), though early distributions may be recalled.

• Harvesting (years 3 – 10)

– The time period that managers use to exit the investments through one-off asset sales, portfolio sales, IPOs, and other exit opportunities.

– The proceeds of the realizations are distributed to the fund’s investors according to a pre-determined schedule, or distribution waterfall, which includes the payment of carried interest to the manager (if applicable).

• Liquidating (years 7 – 14)

– The manager uses this time to exit the remaining investments in the portfolio.

– If the fund life is extended beyond its initial term (as stated in fund legal documents), management fees may be negotiated lower.

TYPICAL CLOSED-END FUND LIFECYCLE

22

Benchmark Index

Benchmark Applicability

Description & ConsiderationsUnderlying

Index Components

S&P Global Infrastructure Total Return Index


• Includes the largest developed market companies in the transportation, utilities, and energy infrastructure sectors

• Includes the 15 largest emerging market companies across all three subsectors

• Constituents must have a market capitalization of at least $250 million and meet liquidity requirements

Publicly-Listed Equities

Preqin Quarterly Infrastructure Index

Open-EndFunds

• Fund-level index comprising unlisted infrastructure partnerships

• Includes some private equity energy managers

Open- and Closed-End

Funds

MSCI Global Quarterly Infrastructure Asset Index

Open-EndFunds

• Asset-level benchmark including approximately 150 assets(across 10 asset owners)

• Performance reported quarterly including income and appreciation return components

• Represents an estimated 20% of the unlisted infrastructure market

• Approximately 50% Australia

IndividualAssets

Preqin Global Infrastructure Benchmark

Closed-End Funds

• Fund-level benchmark by vintage year

• Average of 14 funds per vintage year

• Includes some private equity energy managers

• Only provides median DPI figures (not quartiles)

Open- and Closed-End

Funds

Cambridge Associates

Closed-End Funds

• Fund-level benchmark including closed-end infrastructure funds only

• Pooled quarterly return series also available

• Limited number of observations (average of 2 funds per vintage year)

Closed-EndFunds

INFRASTRUCTURE BENCHMARKS

23

• Compares fund performance to performance of peer infrastructure funds

• Used to measure skill in picking top performing funds vs. peers for specific vintage years

• Metrics include IRR, TVPI and DPI

• Growing data set, but limited data is available for some vintage years

Peer Group

• Measures returns against the opportunity cost of investing in asset class rather than public equity

• Investors in private infrastructure seek to achieve a premium relative to the public markets for illiquidity and greater risk

• Private markets investments will underperform public markets for first few years due to J-curve

Public Markets

• Fund portfolio’s are typically designed to hedge against inflation, this method will measure returns against inflation index (CPI +3-5% often used)

• More useful of a method during late fund life

Inflation Index

• Measures performance against an absolute return (i.e. 6-12% net IRR)

• Not as useful of a method during early fund life

• Widely used method of infrastructure benchmarking

Absolute Return

BENCHMARKING

24

Term Standard Term Description

Closed or Open Ended: Closed The fund can only accept subscriptions (commitments) for a defined period of time, after which, is closed to new investors.

Investment Vehicle: Limited Partnership

A limited partnership exists when two or more partners unite to jointly conduct a business in which one or more of the partners is liable only to the extent of the amount of money that partner has invested.

Fund Term: 12-25 years, depending on strategy

The fund has a defined term with which to invest and harvest investments. If the fund still has remaining investments at the termination date, the GP can request to extend the life of the fund.

Investment Period: Generally five years

The GP contractually has a defined period of time with which to invest capital. The GP may be able to make add-on investments to its main platforms after the investment period concludes.

Management Fee: 1.5%-2.0% In general, private equity funds will have higher fees.

Basis of Management Fee:

Generally on committed capital during Investment Period; thereafter, net invested capital

In general, the management fee is included in the LP commitment.

Carried Interest: Yes; 20%The amount of gain the GP takes after paying back investment cost, fees & expenses.

Preferred Return: Yes; 6-8%The annualized rate of return that needs to be achieved before the GP can take their share of the carry.

Sponsor Investment Generally 2-5%

To align interests, with investors, the GP will typicallycommit a certain amount of capital. The higher the sponsor investment, the greater the alignment of interests.

Distribution Waterfall: Modified deal-by-deal or European

European: Cumulative paid-in capital to date has to be returned to LPs before GP can share in the carry. Modified: The GP will take their carry on a deal-by-deal basis.

TYPICAL FUND STRUCTURE & ECONOMICS

25

NEPC, LLC

SECONDARIES

• Secondaries strategies acquire interests in existing funds and partnerships invested in underlying infrastructure and real assets

– Acquisitions typically occur several years into a fund’s investment period, at which point underlying investments are identified and the harvesting period has begun

– Provides broad exposure to multiple funds and partnerships

• Secondary transaction drivers

– GP consolidation, LP staff turnover and administrative burdens, LP liquidity constraints, and portfolio rebalancing

• Benefits

– Accelerated Distributions

• Timing of investment to realize near-term cash flow reduces the effects of the “J-curve”

– Fund Diversification

• Broad variation available across strategy, geography, manager and vintage year

– Favorable Pricing

• Acquire investments at discount to current intrinsic value

• Considerations

– Limited control

– Double layer of fees

– Limited manager universe

– Potential look-through issues

REAL ASSET SECONDARIES OVERVIEW

27

0

50

100

150

200

250

300

350

400

450

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q22018

$ B

illio

n

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q22018

$ B

illi

on

REAL ASSET SECONDARIES OPPORTUNITY SET

28

Unrealized Value Dry Powder

Growing Opportunity Set

• Total unrealized NAV and dry powder in the private infrastructure and real asset space reached over $1.1 trillion in 2018

• Large stock of seasoned real assets has led to growth in secondary transaction volume from $2.4 billion in 2014 to $6.5 billion in 2018

• There has been significant growth in primary and direct real assets investing over the past decade, resulting in the need for liquidity via secondary transactions

Source: Preqin, Evercore, Campbell Lutyens

NEPC, LLC

FUND PROFILES

FUND PROFILE: BROOKFIELDGeneral Fund Information

Fund Name Brookfield Infrastructure Fund IV

Investment Manager

Brookfield Asset Management

Main Address181 Bay Street, Suite 300Toronto, ON M5J 2T3

Target Fund Size / Hard Cap

$17 billion / $20 billion

Capital Raised $15 billion

Expected Final Close

Q4 2019

Fund Structure Delaware Limited Partnership

Investment Period

Four years from the final close

Term of Entity12 years from the date of the final close, subject to two one-year extensions

Minimum Investment

$10 million (GP may accept lower)

Fund Auditor Deloitte & Touche LLP

Fund Strategy

Fund Strategy

Infrastructure

Industry Focus

Transportation, Renewable Power, Energy, Utilities and Data

Geographic Focus

Global

Target Fund Leverage

10% maximum at Fund level

Target Deal Size

$500 million to $1 billion

Strategy Description

BIF IV will be a continuation of the strategy employed by its predecessor funds which is to make direct investments in high-quality core infrastructure assets. Brookfield attempts to be a value buyer of these assets in geographies in which the Firm has an operating presence, including North and South America, Australia/ Asia and Europe. The Fund will generally seek to make investments in transportation, renewable power, utilities, data and energy assets/ platform companies.

GP Fees, Promote and Commitment

Target Gross IRR

10%

Target Gross Multiple

1.8x

Management Fees

The management fee will be 1.5% per annum on committed capital during the investment period. Following the investment period, the management fee will be 1.5% per annum on invested capital.

Preferred Return

8%

Carried Interest

20% with an 80% GP catch-up

GP Commitment

$4.25 billion

Fund Track Record ($ in Millions)

Fund Name Fund StyleVintage

YearCapital

CommittedCapital Funded

Reported Value

Amount Distributed

Total Value

TVPI Multiple

DPI Multiple

Investor IRR

Brookfield Infrastructure Fund I Infrastructure 2009 $2,655 $2,540 $3,369 $1,628 $5,325 1.8x 0.7x 10.9%

Brookfield Infrastructure Fund II Infrastructure 2013 $7,000 $6,242 $8,436 $1,435 $10,349 1.5x 0.3x 10.6%

Brookfield Infrastructure Fund III Infrastructure 2016 $14,000 $9,635 $11,225 $1,198 $12,684 1.2x 0.1x 14.1%

Track record data as of 06/30/19 and provided by the Manager.

FUND PROFILE: JLCGeneral Fund Information

Fund Name JLC Infrastructure Fund I, L.P.

Investment Manager

MJE-Loop Capital Partners, LLC

Main Address88 Pine Street, 25th FloorNew York, NY 10005


$1 billion / $1.25 billion

Capital Raised $342 million


Q4 2019


Investment Period

Five years from the final close

Term of Entity12 years from final closing, subject to two one-year extensions

Minimum Investment


Fund Auditor PricewaterhouseCoopers, LLP

Fund Strategy

Fund Strategy

Infrastructure

Industry Focus

Utilities, Transportation, Renewable Energy, Power

Geographic Focus

United States


The Fund has no leverage restrictions, but will seek to add conservative leverage only to stabilized assets.

Target Deal Size

$50 million to $200 million of equity


The Fund is targeting an investment portfolio that is balanced with roughly a 50/50 split between public infrastructure assets and privately-owned assets/companies in the power, sustainable energy, transport, telecommunications, civil and social infrastructure sectors.

Although the expectation is for a 50/50 split in the Fund’s assets, the Fund will seek to maximize risk-adjusted returns for its investors which may result in a different asset mix in the Fund.


Target Net IRR

10% - 12%

Target Net Multiple

1.5x – 2.0x

Management Fees

The management fee will be 1.5% per annum on committed capital during the investment period. Following the investment period, the management fee will be 1.5% per annum on invested capital.

Preferred Return

8%

Carried Interest

20%

GP Commitment

Up to $5 million

Note: The JLC team does not have a transferrable track record

FUND PROFILE: LANDMARKGeneral Fund Information

Fund NameLandmark Infrastructure Partners II

Investment Manager

Landmark Partners

Main Address10 Mill Pond LnSimsbury, CT 06070


$1.5 billion / NA



Q1 2020


Investment Period

Four years from the final close

Term of EntityTen years from final closing, subject to extensions

Minimum Investment


Fund Auditor Deloitte Touche Tohmatsu, LLC

Fund Strategy

Fund Strategy

Real Assets Secondaries

Industry Focus

Infrastructure

Geographic Focus

Global


Not to exceed 25% at the Fund-level, underlying investments will have leverage as determined by the GPs of those funds

Target Deal Size

$5 million to $50 million of equity


The Fund will focus on investing in infrastructure and real assets secondary market transactions. The Fund intends to acquire interests in infrastructure funds, partnerships, and other structured investment vehicles that own infrastructure and real assets-related assets. Landmark will target a broad array of sectors including utilities, transportation, communication, renewables, and energy infrastructure


Target Net IRR

10% - 12%

Target Net Multiple

1.4x

Management Fees

During the investment period, the management fee will be 1.0% on committed capital; for the next four years it will be 1% on invested capital and 1% of NAV thereafter

Preferred Return

7%

Carried Interest

12%

GP Commitment

At least 1.0% of commitments



YearCapital


Reported Value

Amount Distributed

Total Value

TVPI Multiple

DPI Multiple

Investor IRR

Landmark RA 1a Secondaries 2015 $253 $133 $143 $28 $171 1.3x 0.2x 17.1%

Landmark RA 1b Secondaries 2016 $202 $117 $123 $21 $144 1.2x 0.2x 12.4%


FUND PROFILE: PRIVATE ADVISORSGeneral Fund Information

Fund NamePrivate Advisors Real Assets Fund II

General Partner Private Advisors, LLC

Main Address500 West 2nd Street Austin, Texas 78701


$350 million / NA



Q4 2019


Investment Period

Three years from the final close

Term of EntityTwelve years from the final closing subject to three 1-year extensions

Minimum Investment


Fund Auditor PricewaterhouseCoppers, LLP

Fund Strategy

Fund Strategy

Real Assets Multi-Manager

Industry Focus

Diversified

Geographic Focus

United States


Credit facility no more than 15% of capital commitments; underlying fund managers may also incur leverage

Target Deal Size

$5 million - $30 million


The Manager will pursue a variety of underlying strategies in order to build a diversified real assets portfolio. The Fund is expected to be diversified across primary fund commitments, direct investments, co-investments, and secondary investments. The Manager intends to invest across the real assets value chain, within the energy, metals & mining, and agriculture sectors.


Target Net IRR

15%

Target Net Multiple

1.7x - 2.0x

Management Fees

During investment period (years 1-3): 0.85% on committed capital, reduced by 10% per year thereafter

Preferred Return

8%

Carried Interest

7.5%

GP Commitment

5% of total capital commitments



YearCapital


Reported Value

Amount Distributed

Total Value

TVPI Multiple

DPI Multiple

Investor IRR

Private Advisors Real Assets Fund IDiversified Real

Assets2016 $205 $164 $194 $23 $215 1.3x 0.1x 19.6%

Private Advisors Real Assets Fund IIDiversified Real

Assets2018 $222 $76 $87 $0 $87 1.1x 0.0x 29.4%

33


NEPC, LLC

APPENDIX: DISCLAIMERS & DISCLOSURES

0

10

20

30

40

50

60

70

80

90

100

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90 Capital Raised ($B)

(LHS)Number of Funds

(RHS)

7%

42%

53%

65%

83%

Other

Income


Inflation Protection

Diversification

35%

26%

17%

11%

11%

Pensions Financial Institutions

Foundations & Endowments Family Office/HNW

Other

WHO INVESTS IN INFRASTRUCTURE

35

Source: Preqin; as of September 30, 2018; Greenwich Associates

Objective of Real Assets in Portfolio Strong Fundraising Environment

Institutional Investors in Infrastructure

• Institutional investors have become increasingly active in infrastructure

• The number of investors in infrastructure has grown 67% from 2013 to 2018

• Public pension funds account for the largest portion of institutional investors in infrastructure

• Robust fundraising in recent years with significant dry-powder in search of deal flow

Investors by Type

Note: Based on 92 plan sponsor and 18 investment consultant responders

Core Real Estate

Private Infrastructure

Energy Private Equity

VA & Opp. Real Estate

Timber

Farmland

Commodities

REITs

MSCI ACWI


US Large Cap Equities

Core Bonds

60/40 Portfolio

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Avera

ge R

etu

rn

Standard Deviation

LONG TERM RETURNS & VOLATILITY

• Private infrastructure (green diamond) has the potential to generate higher returns with less risk than publicly listed infrastructure (green square)

– In the short to medium term public infrastructure equities are subject to broad equity market volatility

• Over the trailing 20 years, private infrastructure has generally delivered lower risk-adjusted returns than other private real assets (blue circles)

– The chart below also shows infrastructure’s relative risk and return versus more traditional asset classes (orange circles)

36

Sources: NCREIF, Preqin, Thompson One/Cambridge Associates, Bloomberg. Data as of September 30, 2018.Calculated using 20 years of quarterly returns except for listed infrastructure which has data since 2007 (the earliest available for the index).

19

98

–2

00

82

00

8 –

20

18

Core Real Estate



VA & Opp. Real EstateTimber

Farmland

Commodities

REITsMSCI ACWI


US Large Cap Equities

Core Bonds

60/40 Portfolio

-8.0%

0.0%

8.0%

16.0%

24.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Avera

ge R

etu

rn

Standard Deviation

Core Real Estate



VA & Opp. Real Estate

TimberFarmland

Commodities

REITs

MSCI ACWI


US Large Cap EquitiesCore Bonds

60/40 Portfolio

-8%

0%

8%

16%

24%

0% 5% 10% 15% 20% 25%

Avera

ge R

etu

rn

Standard Deviation

Private Infrastructure Had Lower Returns with Higher Volatility (vs. Other Real Assets)

Private Infrastructure Generated Better Risk-Adjusted Returns (vs. Other Real Assets)

CONCLUSION IS DEPENDENT ON TIME PERIOD

Sources: NCREIF, Preqin, Thompson One/Cambridge Associates, Bloomberg. Data as of September 30, 2018.Calculated using quarterly returns since 1998.

PRIVATE INFRASTRUCTURE OPTIONS VARY

Detail Summary Non-Core Core Debt Listed

NEPC View Positive Neutral Negative Neutral

Thesis Buy-fix-sellLong-term buy and

holdHold

Long-term buy and hold

Capital Availability Moderate High High High

Asset Owners

Private funds (closed-end),

Strategic Operating Companies

SWFs, Pensions, Insurance

Companies, Open-End Private Funds, Strategic Operating

Companies

Banks, Private Funds (open-ended and closed-end),SWFs, Pensions,

InsuranceCompanies, BDC,

Hedge Funds

Institutions,Individuals, Mutual

Funds

Complexity High Low / Moderate Low Low /Moderate

RisksSourcing, Pricing,

Execution

Illiquidity, Valuation/Cost of Capital, Disruption

Potential

Valuation/Cost of Capital

Volatility, High Equity Correlation,

Returns Lag Unlisted Funds

Return Expectation (gross)

12%-14% 6%-10%3-5% (senior

corporate)7-10%+ (mezz)

6%-10%

Buy Build/Fix Sell

Direct Sourcing and Deal Complexity Presents Opportunity for Excess Returns

38

Expected RiskLow High

Low

Hig

h

Current Income Return Driver


Viewed as more risky with higher return expectations

Viewed as less risky with lower return expectations

RISK/RETURN PROFILE

39

Maturity of Secondary MarketLess mature More mature

Low

Hig

h

~$100 private equity secondary buyers

EVOLUTION OF SECONDARY MARKET

40

~5 dedicated real asset secondary GPs

Source: Setter Capital

It is important that investors understand the following characteristics of non-traditional investment strategies including hedge funds and private equity:

1. Performance can be volatile and investors could lose all or a substantial portion of their investment

2. Leverage and other speculative practices may increase the risk of loss

3. Past performance may be revised due to the revaluation of investments

4. These investments can be illiquid, and investors may be subject to lock-ups or lengthy redemption terms

5. A secondary market may not be available for all funds, and any sales that occur may take place at a discount to value

6. These funds are not subject to the same regulatory requirements as registered investment vehicles

7. Managers may not be required to provide periodic pricing or valuation information to investors

8. These funds may have complex tax structures and delays in distributing important tax information

9. These funds often charge high fees

10. Investment agreements often give the manager authority to trade in securities, markets or currencies that are not within the manager’s realm of expertise or contemplated investment strategy

ALTERNATIVE INVESTMENT DISCLOSURES

41

city of baltimore fire & police employees’ retirement …€¦ · nepc, llc infrastructure...

Documents