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InstarAGF infrastructure fund gets off the ground

InstarAGF’s fund invests in mid-market infrastructure opportunities focused in North America.

InstarAGF Asset Management Inc. wants to build and repair city infrastructure bit by bit, and now the team has some new money to put to work.

The Toronto-based alternative asset manager announced a first closing on its InstarAGF Essential Infrastructure Fund, with $372-million from institutions and wealthy families in North America, Europe and the UK. Some of these investors can opt to up-size their commitments, which would boost that amount as high as $422-million.

Infrastructure has been a hot topic amid promises of government funding from Prime Minister Justin Trudeau, as well as the increase in big investments being made by the largest pension plans.

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Gregory Smith, chief executive officer of InstarAGF, said the firm's goals are "complementary" to the big pension plans because it can swim after the assets too small to attract big fish. "They're very interested in cutting cheques of $300-million to $500-million, we're interested in cutting cheques of $20-million to $200-million," Mr. Smith said. But "70 per cent of infrastructure transactions in North America are below $1-billion in transaction value," he added.

InstarAGF is in pursuit of mid-market infrastructure opportunities focused in North America, such as refurbishment and retrofitting needs of municipalities, universities, school boards and hospitals (often referred to as the "MUSH" sector).

It might not sound as sexy as the multibillion-dollar investments in shipping ports or electricity distribution networks that have made headlines around the world, but Mr. Smith said that municipalities are in great need of funding and have less access to capital.

"A lot of the deals we're working on right now are around "district energy" facilities around higher education and health care campuses," Mr. Smith said, referring to systems that produce hot or chilled water in a central location and then pipe it to buildings underground for heating or cooling. He's also looking at water and waste water systems and light-rail transit.

Mr. Smith said that the Canadian government's infrastructure goals align with its own visions, but added that there are more U.S. cities in dire need of funding for local projects, so they tend to be more willing to seeking private-sector assistance.

InstarAGF was formed about two years ago as a joint venture between Mr. Smith's company Instar Group Inc. and AGF Management Ltd..

About $135-million of the funds raised has already been allocated to two investments. The first is the purchase of Billy Bishop Toronto City Airport terminal last year, for which InstarAGF is perhaps best known, along with a group of investors. The deal value wasn't disclosed. InstarAGF has also acquired wind power assets from Zero Emission Energy Developments Inc. in British Columbia.

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InstarAGF has been fundraising since April last year and this amount represents just half of the $750-million Instar AGF wants to raise by the end of 2016.

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