A newly-formed Swedish infrastructure investment fund says it may commit to holding periods of 50-100 years for investments in the region’s privately held energy infrastructure companies.
Polhem Infra was founded last year as a special-purpose fund with SEK 9 billion ($930 million) in initial capital from Swedish public pension funds AP1, AP3 and AP4.
Speaking with Nordic asset management news site AMWatch earlier this week, Polhem Infra CEO Mikael Lundin said the firm would pursue “evergreen” holding periods for its target investments—indefinite commitments with no planned exit strategies—compared to the typical private equity holding period of seven years.
“I’m not saying that we will never sell anything, but the aim is to keep things for a very long time – 50 to 100 years. We obviously need a reasonable annual return to stay in for that long,” Lundin told AMWatch.
Renewables focus
Polhem Infra’s direct investments will be concentrated primarily in Swedish renewable energy companies, along with some digital infrastructure like fiber and cell towers.
While the fund is free to invest in traditional infrastructure targets like highways and marine ports, Lundin said that given state ownership of the former and little available supply of the latter, the energy sector—owned mostly, to date, by municipalities loath to sell to “risky” foreign buyers—was well suited for new deal-pickings.
Late last fall, Polhem Infra announced its first investment, a 21.5% equity stake in Solör Bioenergi, a privately held producer of wood-based bioenergy in Sweden and Norway, for an undisclosed sum.
“Long-only”
While the “century portfolio” of this relatively new Nordic infrastructure fund may be a relatively outlier, a trend toward longer holding periods in the global private equity space has been bearing out. Analysts at Bain Capital have cited Blackstone’s swift success in raising $5 billion for a long-duration buyout fund, while two first-time funds, Core Equity and Cove Hill, raised upwards of $1 billion each by touting expected holding periods of up to 15 years.
Modeling the historical performance of a theoretical long-duration fund that sold a single investment after 24 years, against a traditional fund that sold four companies over the same period, Bain’s research found that the long-hold fund outperformed its shorter duration counterpart by almost two times (after-tax) by avoiding transaction fees, deferring capital gains taxes, and remaining fully invested during the period.
Management fees: Nej tack
The lower cost profile and greater performance transparency afforded by longer duration investment are music to the ears of Nordic pension funds. Last year, Sweden’s Parliament passed key changes to the nation’s pension investment laws, granting public pension (AP) funds discretion to invest as much as 40% of assets under management to comparatively illiquid (alternative) investments like unlisted real estate and infrastructure.
The new rules also means that funds are no longer required to invest at least 10% of assets with external managers, a move welcomed by fund administrators who have chafed at excessively high management fees.
Per Polhem Infra’s webpage, Sweden’s public pension funds have a lengthy track record of investing and building profitable private companies in the real assets space, including regional property giants Vasakronan, Hemsö and Rikshem and electric utility Ellevio.
