The Queensland Investment Corporation (QIC) has outlined its investment preferences after its infrastructure fund reached an A$1 billion ($733 million) first close.

Now the Australian state of Queensland’s investment firm is targeting an A$1.75 billion final close of its QIC Global Infrastructure Fund (QGIF) within the next 18 months.

Ross Israel, head of QIC Global Infrastructure, told AsianInvestor that the manager would look to “khaki” assets, blending green and brownfield projects.

The fund faces restrictions when it comes to investing in greenfield assets or new developments. Instead, Israel explained that he has a “high appetite for brownfield assets which want expansion capital”. That would see cashflows from an existing asset used to fund the development of linked greenfield projects – such as a tunnel linking motorways or a second runway at an airport.

These khaki investments would help boost returns. “It’s time to be cautious around returns on the downside,” said Israel, pointing to debt refinancing risk.

“The challenge of saying that valuations are high is that the key input is interest rates,” explained Israel. “If your view is that interest rates will stay low for a while, then current valuations are not unreasonable.”

“There is capital out there looking to invest in infrastructure,” said Israel. This is increasing as more institutional investors are reflecting infrastructure as a separate item from other real assets in their portfolios, he added.

Australian assets are set to account for at least 60% of investments for the OECD-focused fund, with Europe and North America accounting for 20% each.

The benefit of Australian exposure is that the country offers opportunities across the spectrum of infrastructure sectors as well as "indirect exposure to Asia," said Israel.

In contrast, the US mainly offers a broad and deep market in energy infrastructure but has a more mature debt market than Australia. "So you can put that risk to bed," Israel said, referring to duration risk. "Australia isn't in that position," he said.

A greater focus on infrastructure was highlighted in May, when the California Public Employees’ Retirement System (Calpers) made its first Asia-Pacific infrastructure commitment. The US public pension fund mandated QIC to source, create and manage a portfolio of Asia-Pacific infrastructure assets as part of a A$1 billion partnership with QIC.

That puts QIC in a “good position to evaluate opportunities across different countries in Asia-Pacific,” said Israel, including non-OECD countries.

Calpers too “has a strong desire to skew [the portfolio] towards Australia and New Zealand,” he added.

Investors in QGIF include an Asian sovereign wealth fund (SWF), a Chinese insurance company, Australian superannuation fund Hostplus and two of QIC’s foundation clients or government entities. QIC was initially set up by Queensland’s government to invest state funds.

The SWF and insurance company are keen to “cross-fertilise opportunities in our market and theirs” via co-investments, said Israel. He explained that cornerstone investors “see the fund as a relationship bridge to gain a collection of exposures with the manager”, QIC.

“Hopefully the first asset could come out of Australia,” said Israel, referring to QGIF’s first investment. QGIF can now start deploying capital after reaching first close.

There is a “good pipeline” in Australia, said Israel, including secondary opportunities as well as privatisations of infrastructure assets by state governments in New South Wales, Victoria and Western Australia. “There is no privatisation agenda in Queensland under the present government,” acknowledged Israel.

In Europe, Israel sees opportunities in public-private partnerships (PPP) as well as European infrastructure funds seeking to sell assets. “There is an array of first generation closed-end funds which will start to harvest or sell assets,” said Israel, citing funds managed by EQT, Antin, Morgan Stanley and Macquarie.

The final close for QGIF is targeted at A$1.75 billion within 18 months after the first close. Israel said fundraising “seems to have traction” and that he was optimistic about reaching final close, possibly by the first quarter of 2016.