Fund analysis: Digital Colony Partners

On 5 June (2019) Florida-based Digital Colony Management signed off final close on its maiden fund Digital Colony Partners at $4.05 billion, slightly above the hard cap.

While going above the hard cap is an emerging trend across the infrastructure fund industry, doing so with a sector-focused fund is testament to how digital infrastructure has gone from being a niche, adventurous investment to a mainstream one.

Managing director Steven Sonnenstein, who joined the firm in May last year (2018) from Canadian pension fund manager PSP Investments, says that the sector has come a long way since he started looking into it in 2012.

“When I started to look at the digital infrastructure space, few institutional investors understood or appreciated the investment sector’s opportunity. Today, digital infrastructure has gone mainstream and most institutional investors have strategically allocated some capital to the sector.

"Digital infrastructure, if done right with the right partners, can offer stable long term cash-flows and growth. Many are also turning to digital infrastructure as a way to seek better risk adjusted returns relative to those currently offered by traditional super-core infrastructure assets.”

Timeline

Digital Colony Management stems from a partnership between Digital Bridge Holdings and Colony Capital, but the firm’s history − as well as that of the fund − goes back to about 16 years ago when its founders Marc Ganzi and Ben Jenkins met at Global Tower Partners (GTP) in 2003.

After ten years of activity in the wireless infrastructure sector, GTP was sold to American Tower Corporation and the two partners launched Digital Bridge in 2013.

Ganzi and Jenkins went on to obtaining over $7.5 billion of debt and equity capital to acquire and invest in a number of digital assets in the Americas including:

  • DataBank
  • Vantage
  • ExteNet Systems
  • Vertical Bridge
  • Andean Tower Partners
  • Mexico Tower Partners

Andean Tower Partners has recently been renamed Andean Telecom Partners. It is now a seed asset in the fund.

In 2017, Digital Bridge teamed up with NYSE-listed global real estate and investment management firm Colony Capital to launch Digital Colony Management and started hitting the road with their first pooled vehicle.

Presented to market in the summer of 2017, Digital Colony Partners launched with a $3 billion target size and a $4 billion hard cap to specifically target digital deals at a global level.

It reached a $1.4 billion first close in February 2018, followed by an interim close in May which took the fund at $2.4 billion.

Over 30 investors globally contributed to getting the fund oversubscribed at $4.05 billion.

A platform approach

Building from Digital Bridge investment experience in the sector, Digital Colony Partners seeks to establish investment platforms to grow its portfolio. A good example is Freshwave, the platform the manager has established to make digital acquisitions in the UK.

The firm breaks down the fund’s mandate into the following sub-sectors:

  • data centres
  • fiber networks
  • telecoms and broadcast tower networks
  • small cell

While it has a global mandate, the Americas and Europe are the main focus for investments, reflecting Digital Colony’s presence in Boca Raton, Florida; London; and New York.

The fund is a 10-year closed-ended vehicle with two one-year extensions. It targets 15-20% IRR and aims for a total of eight to 10 investments of average equity size from $300 million to $600 million.

It has already closed seven investments, four of which in Europe and two in the Americas.

  • Andean Telecom Partners – Columbia, Chile and Peru − telecoms and broadcast towers
  • FreshWave Group – UK − digital infrastructure platform
    o StrattoOpencell – in-building small cell towers
    o iWireless Solutions – outdoor small cell towers
    o Spyder – small cell and telecoms towers
  • Digita − Finland − telecoms and broadcast towers and fiber
  • Cogeco Peer 1 – Canada – data centres and fiber

Digital Colony has also recently signed a deal to acquire Zayo Group in partnership with Swedish manager EQT. Zayo provides bandwidth to companies through its 130,000 mile network in North America and Europe.