Well, it's here: US fund manager Global Infrastructure Partners has just closed its record-breaking $15.8 billion third infrastructure fund, beating rival Brookfield's $14 billion third vehicle to become the asset class's largest-ever fund.
Whichever way you look at it, it's a breathtaking achievement: in just over a year, GIP signed up 191 LPs – 94 of which are new – for Fund III, collecting the kinds of individual cheques that would make up a smaller manager's fund. Case in point: the Washington State Investment Board, which committed $1 billion to GIP III, putting almost as much capital into the fund as the entire €1 billion raised by French manager InfraVia last year.
Alongside Brookfield Infrastructure III's recent close, GIP III is testament to the wall of capital descending on infrastructure. But like BIF III, GIP III is also – even before we get to its size – a bit of an anomaly in a world where global strategies are increasingly feeling the heat from more fragmented offerings.
Our latest fundraising data points to that. While, on the face of it, the $19.81 billion raised for global strategies in 2016 seems to represent only a modest decline from an average of $23.5 billion raised in 2012-2015, it's important to note that last year's global figure includes BIF III's $14 billion close.
In that sense, GIP III's enormous success inevitably overshadows another important milestone in the development of the GIP business: that in 2016, GIP diversified away from being the manager of two flagship global funds (with $13.89 billion raised between them) to close its first debt and regional vehicles, which raised around $1 billion and A$2.75 billion ($2.1 billion; €1.9 billion) respectively.
By betting on two of the most vibrant corners of the infrastructure universe – debt and Australia – GIP is capitalising on two good opportunities while simultaneously satisfying LPs' demand for more focused strategies.
It's also showcasing the pull of its brand, based, to date, on a high-performance strategy of large-scale deals through industrial partnerships. It's the GIP track record that is opening up wallets across the globe, with the Arkansas Teacher Retirement System last February quoting a net IRR of 15.7 percent and a total value to paid in multiple of 1.5x for the $11 billion GIP had invested across its two global funds since 2008.
To sustain that level of performance, though, GIP will have to keep buying the kinds of assets – like London City Airport, for example – that it has managed to transform (and exit from) so successfully in the past at a time when the competition is arguably hotter than ever.
GIP already got a taste of how hard that can be when it locked horns with a Brookfield-led team for last year's acquisition of Asciano, a deal that ended with the two rivals partnering to acquire the asset. At the same time, it planted its flag firmly in last year's A$9.7 billion acquisition of the Port of Melbourne and smartly took advantage of better valuations in the listed market with its purchase of a 20 percent stake in Spain's Gas Natural.
Still, when you're the king of the hill charging top dollar, all eyes are on you. According to ATRS, GIP III comes with a 1.75 percent management fee on committed and invested capital, with 20 percent carry on top. That's at the upper end of what infrastructure managers charge these days. LPs may be willing to pay that price for high performance in a low-returns world – they will almost certainly want that high performance to hold steady, though.
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