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Canada’s Cordiant Digital Infrastructure: London’s funds market provides permanent capital for long term growth

Introduction

As one of the top three largest fund IPOs in London in 2021, Montreal-based Cordiant Digital Infrastructure Limited has raised more than $1bn on the London market since February 2021. According to Benn Mikula, the fund’s Co-CEO and Head of Investments, the London investment funds market provides access to permanent global capital while broadening their investor base.

What does the fund do and why has it been launched now?

At Cordiant Digital Infrastructure we are focused on investing in the next generation of infrastructure and real assets. Compared to infrastructure such as toll roads, motorways, bridges and airports, where the use case has not changed radically in the past 40 years, digital and renewable energy infrastructure are complex and dynamic categories where the use cases are changing. As we have seen through the Covid-19 pandemic, the plumbing of the internet has never been more vital to daily life.

Digital infrastructure is one of the three key sectors on which the investment manager of the fund, Cordiant Capital, is focused. We typically invest in mid-sized companies seeking growth capital to expand – we are a buy, build and grow investor with an approach that deploys strong operational expertise.

We invest through private equity and private debt funds – Cordiant Digital Infrastructure is our first listed investment fund.

We saw there was a pool of capital through the investment funds market of the London Stock Exchange that could allow us to implement a very long-term investment strategy for core digital infrastructure assets that was well attuned to our value creating model. London also offers a more flexible regulatory structure where funds can invest entirely in private assets and are not subject to liquidity constraints, whereas funds in the US are limited to investing only up to 15% of their portfolio in illiquid assets. For long-living, steadily developing businesses, the investment company structure works extremely well.

Of course, this is not entirely novel; we are following in the footsteps of the London Stock Exchange’s history. Our flotation last year took place almost exactly 150 years after the formation of the Submarine Cables Trust – the first London-listed fund to invest in subsea cable.

What opportunity does the fund offer that was not previously on the market?

London’s investment funds market has a great heritage in supporting innovative asset classes. It is only recently that digital infrastructure has been recognised as a discrete asset class requiring a manager with specific expertise – and we were the first dedicated digital infrastructure trust on the London market, so I think we have pioneered a market segment.

It has been estimated that the capital expenditure on digital infrastructure amounts to $600bn per annum; the growth prospects are significant. And these are expensive assets; our ability to develop them will create very interesting opportunities for investors.

 

“London’s investment funds market has a great heritage in supporting innovative asset classes.”

-    Benn Mikula, Managing Partner & Co-CEO, Cordiant Capital

 

How much did the fund raise?

We raised USD$514 million during IPO and returned to the market in June 2021 and January 2022, raising in total just over USD$1bn. We have fully deployed these funds.*​

The closed-ended structure of the fund and the scale of the London market means that we can access global permanent capital.

What does the permanent capital structure enable the fund to do?

There are different perceptions of time horizons between an investment trust and a private equity fund. That’s not to say that one is good and the other is bad. When a private equity fund buys a company there is an expectation of a sale, potentially sooner rather than later; the management team knows that the relationship will be time-defined.

As an investment trust, our interactions with management teams, and particularly vendors of digital infrastructure assets, are quite different because, theoretically, we can be an owner of the asset in perpetuity. It is a different texture of conversation.

A company that is selling digital structure assets is looking to liberate capital to allow them to invest in their core business. But they want to know that the assets will continue to operate well over a long time, so they are delighted to sell to a buyer that can hold these assets for a very long time.

What has been the investor response?

We are headquartered in Montreal with offices in London, Luxembourg and São Paulo. Given that we invest in infrastructure and real assets, we felt that the London Stock Exchange offered us access to a new and large set of steady, long-term and highly sophisticated investors.

The investor base for Cordiant Digital Infrastructure has very different characteristics from our investors to date, so the IPO has broadened our investor base in a positive way. We always want to have good, strong relationships with our investors and are now making headway in adding new investors from the US and continental Europe.

*Capital raised figures are as of April 2022. Cordiant Digital Infrastructure Limited has since raised EUR200 million via a Eurobond facility in June 2022.

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