Hints of a revival

Its official: things are looking up. The latest infrastructure fundraising figures from placement agent Probitas Partners show that $5.9 billion was raised in the first quarter of 2010. This represents more than half the $10.7 billion that was collected in the whole of last year, according to the firm’s estimates.

It may be mere fancy to extrapolate this figure over the coming three quarters and arrive at a total fundraising figure of around $24 billion for the year as a whole. A teasing thought nonetheless, as this would challenge for the title of the infrastructure asset class’s second-best fundraising year ($24.7 billion was raised in 2008, which was down from the $34.3 billion peak recorded in 2007).  

An encouraging fact is that Probitas registered some 17 fund closings during the period. Many of these were small first closes – and it’s relevant to note that Q1 closings from the likes of Energy Capital Partners II ($1.25 billion) and the EU’s Marguerite Fund (€750 million) accounted for a fairly substantial slice of the total. Nonetheless, the wide range of funds that were able to collect investor cheques provides hope that this is a sustainable trend rather than a mere statistical blip.

In reaching for explanations, some obvious ones spring to mind. For a multitude of oft-cited reasons, 2009 was a year when it was very difficult for limited partners to make commitments. There were structural issues such as the denominator effect, and also a fundamental re-evaluation of asset allocation strategies in light of the crisis.

It was bound to take a while for normality to resume as these structural pressures eased and limited partners began once again to be persuaded of the merits of infrastructure exposure. Happily, that first quarter fundraising figure does indeed provide us with the first hint of a return to normality.

There is also what we view as a less obvious explanation for the fundraising revival – the way in which in which some managers are finding it rewarding to ditch the classic private equity-style fundraising model (prepare a pitch-book, hire a placement agent and hit the road) in favour of an approach that places more emphasis on putting together an anchoring coalition of investors at the outset.

In the May 2010 issue of Infrastructure Investor, we shall be examining this trend in more depth.