Drilling into $88m infrastructure fund with Pati

  • Top man: Joseph Adams, the chief executive of Fortress Transportation and Infrastructure Investors LLC, and board member of Fortress Investment Group, in New York, is the chief investment officer of the BIF

    Top man: Joseph Adams, the chief executive of Fortress Transportation and Infrastructure Investors LLC, and board member of Fortress Investment Group, in New York, is the chief investment officer of the BIF

Dear Sir,

There are not many places in the free world where the taxpayer can be so close to the political process that they could assume to receive a direct reply to an inquiry from one of their democratically elected leaders.

Well, in Bermuda, I thought exactly that. In hindsight, I realise that it was naïve of me to think that a “close encounter” of this nature would be forthcoming — and it wasn’t. Although, I must say, surprisingly, our designated/unelected governors have always been responsive in the past to my letters.

So I did what our legal system says I can do if I want information from the Government. I submitted a public access to information request to the Ministry of Finance, requesting more information on the Bermuda Infrastructure Fund.

For those of you who may not know, by way of this BIF, our government — and the private sector — has the availability of up to $88 million in funding, a financing vehicle, which was generously provided by a number of local/international companies in 2018 to provide inward investment to Bermuda and to assist the Government in upgrading our ageing infrastructure. At least, that is what the title of the fund suggests.

The BIF has been in place for more than a year now and I was interested to find out more, so on July 7, 2019, I submitted a Pati request to have a better understanding of the fund structure and whether the Government has committed the taxpayer to any public infrastructure projects. While some of the following information has already been recently reported in the general media, it is worth reviewing again, along with some additional details revealed by my Pati request.

This is what I learnt:

BIF Projects to date

The approximately $88 million fund has developed and is advancing several opportunities as follows:

• The fund has signed a term sheet to invest up to $10 million with a start-up, fixed-wireless internet provider, using industry-leading technology

• The fund is evaluating a $35 million indoor vertical-agriculture facility and co-located solar development

• The fund has already made a $1.5 million investment to a start-up miniature electric-vehicle rental business in April 2018, to assist it in the purchase of assets

It is interesting to note that more than half the fund is being considered for what appear to be private-sector projects.

The BIF Vetting Process:

Joseph Adams, the chief executive of Fortress Transportation and Infrastructure Investors LLC, and board member of Fortress Investment Group, in New York, is the chief investment officer of the BIF and heads a team of investment professionals who will evaluate investments that fit the mandate of the fund, including satisfying the following criteria:

• Profitability, Actionability, Risk-Adjusted Return, Management Team Capability, Reliability of Technology and/or Design, Quality of Service Provider, Downside Protection, Value Creation Potential.

The BIF Manager — Fortress Investment Group LLC:

Fortress Investment Group’s basic duties are to act as an investment adviser for the fund, invest in companies and projects, purchase and sell assets, securities and businesses on the fund’s behalf and manage and supervise the fund’s investments.

The Government/Taxpayer’s obligations under the structure of the BIF:

Management fees are payable by investors, semiannually in advance, in an amount equal to 0.75 per cent of their capital invested, with a minimum annual fee of $1 million. The Government backstops the fund’s minimum management fee, essentially paying the difference, if any, between the management fee earned by Fortress, which is based on the invested capital of the fund’s investors at that time, and $1 million.

The Government’s commitment to make up all shortfalls of the management fee is capped at $3 million. To the extent the Government’s capital is not returned by the conclusion of the fund’s investment period, the Government will have an ongoing, pro-rata, limited-partner interest in the fund. (The fund’s investment period was not disclosed).

Judging from information received to date, it seems clear that the fund is providing much needed private-sector capital for Bermudian start-up companies who otherwise would not be able to secure financing.

Given what I perceive to be a valid vetting process to qualify for BIF financing, this is a valuable opportunity for struggling entrepreneurs who wish to own their own business and take their place in Bermuda’s economy.

The BIF founders deserve much credit for stepping forward in this regard. To date, there does not appear to be any public infrastructure projects under review by the BIF, although it was unclear about the origin of the vertical indoor-agriculture facility proposal.

My Pati request did ask for a copy of the offering documents, which were given to potential BIF investors in the official solicitation of the fund. This request was denied, on the grounds that “the records are exempt as their disclosure would prejudice the interest of other parties because they contain information received in confidence”. Given that the Government/taxpayer has an ongoing financial obligation to backstop the fund’s management fees, I am disappointed that these documents were not made available for review.

I had hoped that disclosure of the terms of the offering documents would shed more light on items such as:

• Is there a maximum dollar amount of investor funds allowed for any one project?

• Should the Government’s commitment to make up all management fee shortfalls reach the $3 million fee cap, and if the Government does becomes a pro-rata, limited participant in the BIF, is it reasonable to assume the Government will then have a pro-rata obligation — as opposed to 100 per cent — for any continued shortfall in fees, with regard to the minimum management fee requirement?

• Is the BIF financing commitment for projects short term or long term? Or is it project-specific?

In conclusion, while I do think that introducing this fund as “The Bermuda Infrastructure Fund” was somewhat of a misnomer, I am hopeful that we will see positive opportunities and returns for Bermudians in the form of jobs and related economic activity, which can only be a win-win for Bermuda as a whole.



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Published Aug 13, 2019 at 8:00 am (Updated Aug 13, 2019 at 8:36 am)

Drilling into $88m infrastructure fund with Pati

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