Buying an infra GP avoids the first-time fund blues

Much like the slowdown in fundraising and dealmaking, market forces meant we had seen fewer GP consolidation deals. Until last week, when CVC Capital Partners made a €1 billion move for DIF Capital Partners, followed the next day by the acquisition of Energy Capital Partners by Bridgepoint Group (owner of PEI Group, which publishes Infrastructure Investor), in a deal valuing ECP at £835 million ($1 billion; €974 million).

The deals mark a return to the wave of infrastructure consolidation plays seen in 2021 and 2022. Think Nuveen’s takeover of Glennmont Partners in January 2021, Patrizia’s acquisition of Whitehelm Capital in September 2021 before Schroders capped off the year in December with its acquisition of Greencoat Capital. Early 2022 saw Colliers come in for Basalt Infrastructure Partners before the M&A wave broke, save for smaller stake sales from the likes of Meridiam and Stonepeak.

Well, the wave is building again, and the motivations remain the same: firms without an infrastructure or energy transition vertical believing investing in established GPs is a better route to market than building it out fresh themselves.

A CVC spokesman said as much, telling us that “the trend has been that LPs have put more allocation to experienced managers”, adding that the inclusion of DIF in CVC’s offering “gives LPs choice and allows them to invest across our strategies”.

Anything, perhaps, to ensure GPs don’t come up against the dreaded ‘first-time fund’ tag, which, while traditionally applied to emerging managers, is impacting even the most established of infrastructure houses as they expand their horizons.

Take Brookfield Asset Management. On a $15 billion close, there’s no suggestion its debut Global Transition Fund I struggled. In fact, Connor Teskey, president of BAM and CEO of its renewable power and transition unit, told us recently BTGF I closed “right at the high end” of Brookfield’s expectations for it. However, chief executive Bruce Flatt told the group’s Q2 earnings call last month that “despite our deep expertise and capabilities in the space, a number of investors were restricted from first time funds or limited in the amount they could invest” in BGTF I.

An LP source told Infrastructure Investor recently that they are reluctant to invest in KKR’s new Global Climate Fund for similar reasons, while sources have also told us that concerns around a first-time strategy have been a slowing factor for Antin Infrastructure Partners in fundraising its NextGen Fund I.

And if Brookfield, KKR and Antin are going to get first-time fund scrutiny, you can bet CVC and Bridgepoint – highly established PE managers themselves – would not escape it either had they launched infra strategies from scratch.

The onus now is on these newly consolidated entities to showcase to LPs the benefits and plans of the moves, which seemingly still need fleshing out. DIF and CVC are “looking for ways to work together and leverage our joint expertise”, Allard Ruijs, DIF’s chief investment officer, told us. As for Bridgepoint, incoming group chief executive Raoul Hughes said the pair are still contemplating whether ECP’s expansion into Europe should come within the existing fund series or through a new Europe-focused vehicle. The latter option, of course, might well cause the first-time sceptics to look away.

Even if CVC and Bridgepoint just stayed the course with DIF and ECP, they have already bought the 17th and 18th largest infrastructure managers in the world, respectively, according to our Infrastructure Investor 100 ranking. And, if reports from Bloomberg are accurate, number 72 – Arjun Infrastructure Partners – might well be the next on the block.

Anyone interested in buying top-tier fundraising prowess would do well to peruse the rest of our list quickly.