LPs’ changing appetite is bringing single-asset continuation funds into the limelight

Stonepeak’s recent successful continuation fund is a demonstration of the hunger for infrastructure among secondaries investors.

When we shone a light on the nascent growth of continuation vehicles in a Deep Dive in September 2019, the focus was on portfolio-wide processes, as some of infrastructure’s earlier GPs started investigating the various sale options open to them as they began to realise maiden funds.

Of course, that piece arrived just a few months before Global Infrastructure Partners raised £3 billion ($4.1 billion; €3.6 billion) to hold onto its 49 percent stake in London’s Gatwick Airport, the largest single-asset continuation fund to date across private markets. GP-led deals have increasingly involved just a single asset, a trend increasing during the pandemic, Infrastructure Investor reported in September, with buyers finding it easier to perform due diligence on a single asset rather than an entire portfolio.

And so it was, as we reported last week, that Stonepeak raised $3 billion for a single-asset continuation vehicle to keep owning North American data centre platform Cologix, which it had acquired in 2017 via its 2015-vintage Stonepeak Infrastructure Fund II, supported by the fund’s investors and new LPs.

The process came about, as we understand, when Stonepeak saw far higher growth prospects for the company than originally envisaged, with data centres obviously looking at a much steeper trajectory in 2022 than in 2017.

These mammoth fundraising processes are not in isolation. As we reported in February last year, DWS ran a continuation vehicle process for UK-based Peel Ports, while sources have told us of another GIP-led process, this time for its investment in container terminal operator Terminal Investments, which it first bought a 35 percent stake in 2013. Brookfield could also be analysing the prospect of a continuation fund for its PD Ports business, following a halted sales process last year.

Granted, an element of this growth is attributable to the continued rise of the secondaries market and the various options open to GPs and LPs. However, as one source told us, there’s also a more infrastructure-specific element, with the majority of infrastructure secondaries deals involving generalist infrastructure investors, not secondaries specialists.

The renewed demand for core infrastructure, driven in part by a negative yield in fixed income, is also driving LPs to longer-term vehicles and a desire to retain ownership in assets performing these core functions.

Continuation funds, and particularly single-asset ones, may still qualify as niche in the infrastructure market but as GIP and Stonepeak have demonstrated, the appetite is certainly there.

What’s more, 48 percent of the 102 LPs surveyed by Coller Capital shortly before the new year highlighted infrastructure as a private market likely to see secondary market expansion over the next three years, a rather substantial minority for an asset class where many are still underweight in primary allocations. In a buoyant fundraising market, the trend adds yet another route to infrastructure-hungry LP capital.