How it works: Summit Trail Advisors, a wealth management firm in San Francisco, has partnered with American Infrastructure MLP Funds to buy around 50 buildings housing charter schools in 13 states over the past two years. Clients from other independent firms can also invest. American Infrastructure is a private equity fund that charges a 2% management fee and 20% of profits above and beyond an 8% preferred return to investors.
The fund hopes to take the portfolio of schools public in an IPO, says Tom Palecek, a Summit Trail founding partner. “To get there, we need to acquire enough schools to where the aggregate of the portfolio income is in excess of around $100 million,” Palecek says. Upside: Investors were collecting an 11% yield in June while the partnership continued to add schools.
If an IPO proceeds and the stock rose in value, investors could “stand to make a substantial amount” from share price appreciation, Palecek says. If the stock did indeed gain, he estimates the yield could drop to 6% to 8%.
Risks: Charter schools in the portfolio need to keep seats full for years to come, have high test scores and demonstrate “really great management and operations,” Palecek says. Anything less could mean problems. A regulatory change in charter school funding at the federal or state level could also spell big trouble.