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BOSTON | ATLANTA | CHARLOTTE | CHICAGO | DETROIT | LAS VEGAS | PORTLAND | SAN FRANCISCO
CITY OF BALTIMORE FIRE & POLICE EMPLOYEES’ RETIREMENT SYSTEM
DIVERSIFIED REAL ASSETS MANAGER SEARCH
September 2019
Kristin Finney-Cooke, CAIA, Senior Consultant
Kevin Leonard, Partner
Andrew Brett, Director of Real Asset Research
• 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
10-15 years 8-15%Current Income &
Limited Capital Appreciation
Communication
• Wireless communication towers
• Broadcast satellites• Cable networks• Communication towers
8-12 years 10-15%Current Income &
Capital Gains
Social• Education facilities• Healthcare facilities• Courthouses
10-15 years 5-7%Current Income &
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
Listed Infrastructure
• 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
Target Fund Size / Hard Cap
$1 billion / $1.25 billion
Capital Raised $342 million
Expected Final Close
Q4 2019
Fund Structure Delaware Limited Partnership
Investment Period
Five years from the final close
Term of Entity12 years from final closing, subject to two one-year extensions
Minimum Investment
$10 million (GP may accept lower)
Fund Auditor PricewaterhouseCoopers, LLP
Fund Strategy
Fund Strategy
Infrastructure
Industry Focus
Utilities, Transportation, Renewable Energy, Power
Geographic Focus
United States
Target Fund Leverage
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
Strategy Description
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.
GP Fees, Promote and Commitment
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
Target Fund Size / Hard Cap
$1.5 billion / NA
Capital Raised $500 million
Expected Final Close
Q1 2020
Fund Structure Delaware Limited Partnership
Investment Period
Four years from the final close
Term of EntityTen years from final closing, subject to extensions
Minimum Investment
$10 million (GP may accept lower)
Fund Auditor Deloitte Touche Tohmatsu, LLC
Fund Strategy
Fund Strategy
Real Assets Secondaries
Industry Focus
Infrastructure
Geographic Focus
Global
Target Fund Leverage
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 $50 million of equity
Strategy Description
The Fund will focus on investing in infrastructure and real assets secondary market transactions. The Fund intends to acquire interests in infrastructure funds, partnerships, and other structured investment vehicles that own infrastructure and real assets-related assets. Landmark will target a broad array of sectors including utilities, transportation, communication, renewables, and energy infrastructure
GP Fees, Promote and Commitment
Target Net IRR
10% - 12%
Target Net Multiple
1.4x
Management Fees
During the investment period, the management fee will be 1.0% on committed capital; for the next four years it will be 1% on invested capital and 1% of NAV thereafter
Preferred Return
7%
Carried Interest
12%
GP Commitment
At least 1.0% of commitments
Fund Track Record ($ in Millions)
Fund Name Fund StyleVintage
YearCapital
CommittedCapital Funded
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%
Track record data as of 3/31/19 and provided by the Manager.
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
Target Fund Size / Hard Cap
$350 million / NA
Capital Raised $222 million
Expected Final Close
Q4 2019
Fund Structure Delaware Limited Partnership
Investment Period
Three years from the final close
Term of EntityTwelve years from the final closing subject to three 1-year extensions
Minimum Investment
$1 million (GP may accept lower)
Fund Auditor PricewaterhouseCoppers, LLP
Fund Strategy
Fund Strategy
Real Assets Multi-Manager
Industry Focus
Diversified
Geographic Focus
United States
Target Fund Leverage
Credit facility no more than 15% of capital commitments; underlying fund managers may also incur leverage
Target Deal Size
$5 million - $30 million
Strategy Description
The Manager will pursue a variety of underlying strategies in order to build a diversified real assets portfolio. The Fund is expected to be diversified across primary fund commitments, direct investments, co-investments, and secondary investments. The Manager intends to invest across the real assets value chain, within the energy, metals & mining, and agriculture sectors.
GP Fees, Promote and Commitment
Target Net IRR
15%
Target Net Multiple
1.7x - 2.0x
Management Fees
During investment period (years 1-3): 0.85% on committed capital, reduced by 10% per year thereafter
Preferred Return
8%
Carried Interest
7.5%
GP Commitment
5% of total capital commitments
Fund Track Record ($ in Millions)
Fund Name Fund StyleVintage
YearCapital
CommittedCapital Funded
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
Track record data as of 3/31/19 and provided by the Manager.
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
Capital Appreciation
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
Listed Infrastructure
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
Private Infrastructure
Energy Private Equity
VA & Opp. Real EstateTimber
Farmland
Commodities
REITsMSCI ACWI
Listed Infrastructure
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
Private Infrastructure
Energy Private Equity
VA & Opp. Real Estate
TimberFarmland
Commodities
REITs
MSCI ACWI
Listed Infrastructure
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
Capital Appreciation
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