Infrastructure funds raise $1.3bn this year

Placement agent Probitas Partners estimates the ‘anemic’ first quarter total partly reflects the glut of first-time fund managers in the market, but limited partners are still favorably predisposed to the asset class and may increase commitments in the second half of the year.

Last year’s slowdown in fundraising has firmly spilled over into 2009 as infrastructure funds raised only about $1.3 billion globally in the first three months of the year, according to updated fundraising data from placement agent Probitas Partners.

The first quarter total is about half the $3 billion infrastructure funds raised in the fourth quarter of 2008, when fundraising took a nosedive in response to turbulence in the public markets.

It is also nowhere near the fundraising levels seen in the comparable period last year. Although Probitas does not have precise first quarter figures for 2008, about $21.7 billion was raised by infrastructure funds in the first three quarters of 2008.

The slowdown isn’t limited to infrastructure. Other illiquid asset classes, such as private equity, also experienced sharp drops in fundraising. US private equity firms raised just $15 billion in the first quarter of the year, down from $82 billion in the same quarter last year, according to data from Dow Jones.

“The problem is that the public markets are so volatile right now, if [limited partners] have any liquidity needs whatsoever, they’re not sure what they can actually sell and at what sort of price. So this is sort of a reaction to what’s going on in the public markets. And it’s certainly not specific to infrastructure,” said Kelly DePonte, partner with Probitas.

He called the first quarter fundraising total for infrastructure “anemic,” but cautioned that private equity is a more mature asset class. This means its slowdown in fundraising is not as steep as that of infrastructure.

“I think that’s in part because infrastructure is a new asset class and so many of these funds that are trying to be raised right now are first-time funds, and those are the kinds of funds that are being hurt,” DePonte said.

“If you don’t have an existing relationship, it’s so easy to say, ‘Well, I’ll just look at it later.’” Deponte added.

Among first-time infrastructure funds in the market: KKR Global Infrastructure Investors, which is targeting $4 billion, California-based Table Rock Capital, which is targeting $2 billion, and Alterna Capital Partners, which is targeting $1 billion. Another first-time infrastructure fund, New York-based LambdaStar Infrastructure Partners, launched in the first quarter of this year, but it is not clear whether it has started fundraising.

These and other funds in the market may have an easier time raising capital later this year. Deponte said limited partners are still favorably disposed to infrastructure and may be easier to approach than in previous years.

“Back two or three years ago it was hard to catch the attention of certain investors because they were saying, ‘well, I can make a ton of money in mega-buyouts – I don’t need [infrastructure]’ and that has really has reversed itself,” DePonte said.

He still sees a lot of US-based investors investigating how to put in place infrastructure programs in their portfolio – a trend which he believes augurs well for the future of the asset class.

“I think the long-term forces behind the infrastructure sector are still there, perhaps even more so,” DePonte said.