It’s natural to wonder whether New York-based Global Infrastructure Partners’ closing of its second fund (GIP II) on $8.25 billion heralds a change in the weather for infrastructure fundraising. Energised by the largest vehicle the infrastructure asset class has ever seen – the previous record having been held since 2006 by Goldman Sachs’ $6.5 billion debut infrastructure fund – is this the moment the lid is lifted on limited partner coffers, enabling the asset class to break free from the investor torpor it has been subjected to since before the Crisis?
In these straitened times, this unfortunately would be too happy a conclusion. Where GIP II does have a claim to groundbreaking status is in pulling US pensions into an infrastructure fund in unprecedented numbers. The likes of California Public Employees Retirement System, Washington State Investment Board, Virginia Retirement System, Florida State Board of Administration and Maine Public Employees Retirement System are just some of the names on the LP roll call (see Infrastructure Connect for further details). US pensions have been late to the infrastructure game – GIP II demonstrated that, for the right fund, they will step up en masse.
But, set against the overall global fundraising picture, it’s apparent that GIP II is a brutish anomaly – a muscle-bound steed in a field of ponies. Research by placement agent Probitas Partners reveals that the $2.5 billion raised by GIP II in the second quarter of this year nearly equalled the $2.9 billion raised by all infrastructure funds globally in the first quarter. A buoyant GIP does nothing to prevent other infrastructure fundraisers from feeling flat as a pancake.
It seems to us that ‘club’ investing is today’s vogue, whether of the formal variety that Access Capital Advisers has been undertaking for the last 15 years (sourcing deals on behalf of a collection of Australian superannuation funds which are effectively club members) or the informal variety, whereby fund managers lead a deal and then cast around for co-investors to pull in alongside them (such as CP2 successfully executed with the ConnectEast toll road transaction). It was CP2 managing director Syd Bone who voiced the opinion in a recent interview with Infrastructure Investor that LPs “don’t need funds…don’t want blind pools any more”.
Then you have other platforms, also designed to allow institutional investors to sidestep the fee model that the infrastructure asset class inherited from private equity and which has become a big discincentive to invest. One example is the Pensions Infrastructure Platform, which recently achieved its target of signing up eight UK pensions, each committing £100 million. The PIP is itself modelled on Australia’s longstanding and considerably larger Industry Funds Management, which is owned by 32 pension funds.
Having said that the club approach is fashionable, however, is not the same thing as saying that it has a uniform application. This is where the phrase ‘horses for courses’ is apposite: those investors wanting an opportunistic, higher return strategy will still be prepared to grit their teeth and make compromises on the economics in exchange for proven sourcing, execution and asset management skills. The ‘club’ approach is normally more applicable to core infrastructure, implying a lower risk/return.
Moreover, let’s consider another phrase often used in the context of alternative asset fundraising: ‘a rising tide lifts all boats’. Many wizened asset management professionals will tell you exactly why infrastructure stands to claim a much larger share of institutional portfolios in the years ahead – in detail that we can’t go into here. Just one example was JPMorgan’s Mark Weisdorf who, towards the end of last year, told us how infrastructure could claim as large a slice of institutional capital as real estate within the next 10 to 15 years.
He’s not the only one predicting huge advances in the quantum of capital available for investment in infrastructure – a handy percentage of which would be sure to end up in the hands of traditional fund managers. More than any one particular fundraising – no matter how stellar – it is this gradual shifting of tectonic plates within institutional portfolios that ensures the future health of infrastructure fundraising. It does demand patience though.