Australia's PEP launches secure assets fund

The GP, currently Australia’s largest domestic buyout player, started talking to LPs about the venture last year – at the time the prospective vehicle was referred to as an infrastructure fund. The target size is A$750 million ($586 million) with a hard cap of A$1 billion. There is likely to be substantial co-investment alongside the fund.

PEP has previously invested in companies that generate consistent infrastructure-style yield and offer additional upside through an active management approach. They include Energy Developments (EDL), a listed distributed power provider in which PEP acquired a majority stake in 2010 for A$343 million and exited five years later at an enterprise valuation of A$1.92 billion. However, the firm has seen numerous other opportunities that it wasn’t able to act on, largely due to cost of capital issues.

“You need a specialist fund for this, because you bid a certain price on the annuity piece and then you need to apply traditional PEP-type skills to unlock the value-added piece and price this option differently. While we have done a variety of these deals in the past, we often see opportunities that don’t work, unless you are able to price the two components of the deal competitively. We believe you need a blended approach,” said Tim Sims, a co-founder and managing director at PEP.

The fund is expected to generate mid-to-high teen returns with a lower risk profile than a traditional leveraged buyout vehicle. Paul Foster, formerly head of infrastructure for Australia and New Zealand at AMP Capital, joined PEP last year to work on the secured assets fund alongside existing members of the private equity firm’s investment team.

PEP closed its fifth buyout fund at the hard cap of A$2.1 billion in 2015. Fund IV, which had a corpus of A$4 billion, was considerably larger but it included A$1.3 billion in non-discretionary co-investment capital allocated on a pro-rata basis. Co-investment is discretionary for Fund V so there was no need for the sidecar.

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• Topics
• Australasia
• Fundraising
• Infrastructure
• Infrastructure
• Australia
• New Zealand
• Pacific Equity Partners