Fund commitments ‘likely to increase’ in 2012

A new survey from placement agent Probitas Partners predicts that infrastructure fundraising is “likely to increase” in 2012, as the rebound from the depths of the global financial crisis continues. However, it also says that the market will “remain crowded and competitive”.

The Investing in Infrastructure 2012 survey says there are currently over 100 funds in the market seekling to raise over $90 billion in capital. Slightly less than $21 billion was raised globally in the whole of 2011.

The survey finds that investors are continuing to establish dedicated infrastructure allocations, programmes and investment teams – with a marked evolution from “reconaissance” to committing capital and resources. But, as an alternative to a pure infrastructure allocation, the survey also notes that certain investors are creating “inflation-linked” allocations which include timber, commodities and other similar assets as well as infrastructure.

The survey notes that most investors are committing mainly to “backyard funds” focused on their home markets. Europe remains the deepest and most active fundraising market – with a bias to renewable energy and the Private Finance Initiative (PFI) – although the sovereign risk crisis is having an impact.

Asia is seeing backing from local sovereign wealth funds for its higher risk/higher return greenfield opportunities, while fundraising in the US remains at an embryonic stage and is “hampered by a fractured set of PPP [Public-Private Partnership] rules state by state and inexperience both at the government level and with fund managers”.

The survey predicts that investors will be “increasingly aggressive” on fees and carry, pushing for “much lower” levels than the traditional “2 and 20”. While investors will pay more for greenfield or opportunistic strategies, there is particular pressure on core brownfield funds. The larger investors are using their heft to negotiate preferred terms, the survey notes.

The survey adds that the “largest, most mature” infrastructure investors will increasingly pursue not only co-investments but direct investments. However, the survey points out that only the largest investors can successfully pursue such programmes and that, therefore, “the vast majority of investors seeking infrastructure investment exposure will rely on more traditional private equity style funds”.