North America, Europe drive infrastructure fundraising

The two regions led the asset class to buck last year’s trend, experiencing a 17% increase in fundraising growth compared to the 11% drop private markets experienced as a whole, McKinsey reveals in a recent report.

Private markets remained strong in 2018, despite an 11 percent drop in fundraising, McKinsey and Company stated in a recent report, noting, however, that infrastructure fundraising grew 17 percent globally and 59 percent in Europe.

“Private market allocations to infrastructure expanded appreciably in 2018,” McKinsey stated in its Global Private Markets Review 2019. “That’s part of a secular trend: both public and private infrastructure spending (on roads, bridges, tunnels, airports, ports, power, water, and telecommunications) has grown at 4.2 percent annually in recent years.”

The consultancy expects this trend to continue, citing estimates from the McKinsey Global Institute, according to which, at least $4 trillion of annual investment is required through 2035 to keep pace with economic growth.

“Some of this required investment will surely be filled by private market investors,” McKinsey stated. “But, even at the rapid rate of fundraising in this asset class, a significant infrastructure financing gap is likely to persist and present further opportunities for private capital.”

While Europe experienced the largest increase year-on-year in terms of fundraising, jumping 59 percent compared to 2017, infrastructure fundraising in North America was up 22 percent.

“This same growth, however, was not experienced in Asia, where infrastructure fundraising was down 23 percent for the year,” McKinsey noted. “This is partly attributable to the slowing rate of infrastructure spending in China over the last few years, after an enormous infrastructure boom over the past decade. This has limited the need for private market capital for the time being.”

According to the consultancy, mega funds (funds of $5 billion or more) have driven growth not only in infrastructure but in real assets overall, which have generally performed better than other private markets.

While fundraising in private markets has grown by 8 percent annually since 2013, “private debt, natural resources and infrastructure have grown disproportionately faster”, according to the report.

According to Infrastructure Investor data, 53 funds raised $80.39 billion last year, making 2018 infrastructure’s biggest year on record.