AMP Capital’s third infrastructure debt fund, which closed in August on its $2.5 billion hard-cap, was the largest vehicle closed in a relatively lacklustre third quarter, Infrastructure Investor data show.
The subordinated debt fund topped a ranking otherwise dominated by unlisted equity, comprising 11 funds closed and circa $10 billion raised. That tally compares poorly with the third quarter of 2016, in which 17 funds raised more than $26 billion of capital. The caveat there is that Brookfield’s third unlisted equity fund accounted for $14 billion of that total. Still, even without Brookfield, more than $12 billion was raised in Q3 2016.
Having a debt fund raise the most amount of capital in a quarter is unusual and could be a sign that investors are finding better value in subordinated debt. At our infrastructure debt roundtable, Brookfield’s Ian Simes argued subordinated debt can offer better risk-adjusted returns in relation to core equity, especially for mature regulated assets.
“We’re seeing core infrastructure equity at sub-10 percent IRRs and that doesn’t seem to put very much return on risks like regulatory changes or exit multiples. If you’re a 10-year closed-ended equity fund and you buy something today at a very high multiple, and you’re expecting to sell it in 10 years’ time for that same high multiple, if discount rates are higher and general values have come down for whatever reason, then you may not achieve the IRR you were expecting,” he said.
Overall, though, just over $51 billion was raised this year – the best Q1-Q3 tally since we started compiling figures – comparing well with the $47 billion raised during the same time period last year. However, this total, as previously reported, includes the $15.8 billion raised by Global Infrastructure Partners for its third global equity fund, now the largest unlisted equity vehicle ever raised.
If we exclude GIP’s and Brookfield’s third funds from the Q1-Q3 totals, then 2016 saw slightly more capital raised – at $35.33 billion compared with the $33.08 raised in 2017.
For a complete analysis of our Q3 figures, be sure to check our full report, to be published later this month and in the November issue of Infrastructure Investor.