Exclusive: $120m. infrastructure fund announced

Clal, Professional Solutions: We have many projects in the pipeline.

By DANIEL KENNEMER
September 22, 2006 06:20
3 minute read.

 
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Investment companies Clal Finance Underwriting and Professional Solutions Ltd. are set to launch a new $120 million fund for Israeli infrastructure projects, The Jerussalem Post has learned. "We saw that there are very, very interesting, relatively long-term investments in the infrastructure market in Israel," Nissan Caspi, a partner at PS, told the Post Thursday. "We have a lot of projects in the pipeline." Caspi is launching the fund, to be known as Yesodot, together with Clal Underwriting chief executive officer Tzahi Sultan. Caspi said he expected to close the first round of funding - of $20m. in Israeli investments - after the holidays and that he and Sultan have received commitments to invest from Clal Finances and some leading domestic institutional investors. Thereafter, they intend to bring the total amount to over $50m. through a second closing based on US institutions and investors, leading to the ultimate goal of building a $120m. fund next year to invest in water, power and transportation projects. The two Tel Aviv-based companies are currently recruiting additional local investors for Yesodot's kickoff and are looking at provident funds, insurance companies and pension funds as the fund's natural prospective partners. They are also in advanced talks on several projects which will be ready for investment by Yesodot's initial launch period. Investments will be made over the next four years, and profits will be realized within that time and over the following years, leading to the sale of any outstanding investments within ten years from the fund's launching, said Caspi. "We hope to complete investments very quickly," he said. Thereafter, he added, they hoped to launch a second batch of infrastructure investments. The accumulated financial experience of Yesodot partners would allow the fund's involvement in projects to speed up financial closure to between six and 10 months, from a current waiting time of 15 to 18 months, helping to realize infrastructure projects faster, Caspi said. He added that a specialized infrastructure fund allowed for an investment model that would be simultaneously "tailor made" and implemented repeatedly "off the production belt." Once investors receive full return on investments, 20% of additional profits will go to the general partners and the remaining 80% will go to the limited partners, plus 6% per year. Until then, the general partners will receive a 2% management commission. Any commissions paid to the general partners for projects' financial closures would go to offsetting management costs for the fund, not directly to Clal and PS coffers, Caspi stressed. Part of the infrastructure industry's attraction has been that the investment is very low-risk given the government's backing to these projects. Over the next five years, the Israeli government has committed up to NIS 85 billion in public infrastructure projects in such fields as water desalination, electricity production, rail development between and inside cities, roads and energy production from waste. "There is no doubt that Israel is an international superpower in water technologies, providing the basis for solid investments in the field," Caspi added. He stressed, however, that while the state's guarantees often turn out to be unnecessary in light of a project's actual performance, they are essential to bringing private capital into infrastructure projects. Caspi and Sultan have set a minimum investment of $1m. for investors participating in the fund, and their aim is to invest at least $2m. in a minimum of five projects each, but no more than 24.9% of the capital of the project company or 25% of Yesodot's own volume in any single project. The fund is only to invest in projects providing at least 15% annual yields, more than twice that generally offered by REITs or most other investments in yield-generating real estate such as office buildings and shopping centers, and with even less risk, Caspi and Sultan said. The fund has also sparked interest from US investors who have also already expressed willingness to invest, and Caspi said that US funding would likely account for more than half of Yesodot's chest. He listed the New York State Pension Fund and several first tier US investment banks as prospective American partners, and added that the fund was presented to them in April and June. US investor recruiting is being handled by infrastructure finance expert Jack Liebler of Liebler & Associates and environmental technologist Schneur Genack, General Partner of First Analysis Environmental Funds. "Infrastructure investment today worldwide is a big, attractive new thing that people are chasing..." Liebler said in an interview, "and Israel needs these kinds of projects anyway."

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