Few aspects of infrastructure investment have been as radically overhauled by the covid crisis as fundraising. Faced with unprecedented restrictions on travel and in-person meetings, commitments initially stalled. And while the use of video conferencing was quickly adopted for facilitating re-ups and confirmatory due diligence, LPs have proved significantly more wary when it comes to backing new relationships with teams they have never met.
“Fundraising largely paused for the first month or two of lockdown, but by June, enough confidence had returned for re-ups and the closing out of pre-existing business,” says Threadmark co-founder Bruce Chapman. “Meanwhile, from September, we started to see a gradual increase in appetite for new relationships, albeit new relationships where there had been at least one previous physical meeting.”
More than 90 percent of LPs say they are prepared to conduct initial meetings with GPs virtually. Meanwhile, two-thirds will conduct fund due diligence on an entirely virtual basis and just over half (52 percent) would be receptive to investing in fund managers having never met face-to-face.
Remote working has also changed the natural course of the fundraising journey. It is believed to have made fundraising more localised as travel restrictions favour domestic strategies. Meanwhile, currency movements, which can have a major impact on returns, are expected to accentuate this migration to home markets.
Furthermore, when international travel was the norm, investors would put aside several days to meet all the right people and conduct their onsite due diligence. That meeting would prove a critical milestone, leading either to a rejection or a commitment. However, that traditional timeline has been upended.
“Fundraising has become less about roadshows. It is all about scheduling Zoom calls,” says FIRSTavenue partner Tavneet Bakshi. “That makes things easier in terms of having to manage complex calendars, but it also makes the timeline harder to control. It has become more fluid. You have to maintain momentum without the natural triggers of a roadshow or major investor meetings.”
Of course, the big question is, will the fundraising process revert entirely once meeting and travel restrictions are lifted? The general consensus is that some changes, at least, are here to stay.
Annual meetings will remain hybrids, comprising both in-person formats and live stream. Indeed, the virtual hosting of AGMs has proved a hit, managing to reach a much larger cohort than ever before in 2020, with junior members within LP teams getting exposure for the first time and GP deal team members based outside of headquarters getting airtime.
“We held our first virtual AGM this year – a two-hour virtual meeting rather than two days of travelling,” says Allard Ruijs, partner at DIF Capital Partners. “Of course, we missed meeting each other in person, but it was certainly very efficient and considered effective by our investors.”
Winners and losers
Meanwhile, there’s no doubt that there have been fundraising winners and losers as a result of the covid crisis. Prior to the pandemic, we were already seeing an increased concentration on the high-profile big brands that no investment committee could balk at. That situation has been exacerbated.
Ongoing thematic trends have also intensified. Almost 60 percent of investors plan to increase their commitments to digital infrastructure as a result of covid, while a third plan to increase commitments to social infrastructure. Renewables also remain popular, with 55 percent of LPs looking to increase their exposure. Conversely, energy infrastructure continues on a downward trajectory, while appetite for transport has also waned with 19 percent of investors expecting to cut back.
“There are two significant areas of investment – assets that support the low-carbon transition, particularly renewables, and digital infrastructure,” says MEAG’s head of private equity and infrastructure, Frank Amberg. “There’s no doubt that the hottest sector today is fast fibre broadband, which is active across Europe and seeing increasing appetite from infrastructure investors.”
Sandra Lowe, InfraRed Capital Partners’ head of investor relations, adds: “It will come as no surprise that core assets, which have been resilient throughout the pandemic, continue to be in high demand, but also those sectors boosted by the pandemic such as digitisation and, in particular, the fibre sector.”
But she also offers a word of warning. “While we believe there is still strong growth potential, we fear some market segments may already have become over invested and caution needs to be applied.”