As anyone knows who has ever attempted it, there is no one way to do a ranking. In seeking to sum up the heft of investors in any one sector or industry, one can look at any number of things: their assets under management, number of deals, deal sizes. The list goes on.
And certainly, there have been lists and ranking within the world of infrastructure asset management. But there were none that we considered to be sufficiently apples-to-apples. Lists of pension assets managed by infrastructure fund managers, for example, have simply stacked up “assets under management,” whatever that means, without any reference point as to when the assets were originated.
So we at Infrastructure Investor decided to create our own ranking of infrastructure investors that we believe provides an apples-to-apples way to size-up the heft of each of these investors alongside each other. We call it the Infrastructure Investor 30, and it builds on the success of similar rankings that PEI Media, the publisher of Infrastructure Investor magazine, has created for other asset classes.
In private equity, PEI’s Private Equity International magazine is now on its fourth annual ranking of the largest private equity firms in the world, expanded from the original 50 in 2007 to 300 firms in 2010. And Private Equity Real Estate Magazine has now for the third time ranked the 30 largest private equity real estate firms in the world.
At their core, each of these rankings apply the same metric. They ask “what is the amount of capital raised for direct investment over the past five years?” for private equity and real estate, respectively. For these two asset classes, it wasn’t too hard to do the research and figure out how much capital firms had raised for dedicated private equity and real estate investment programmes.
But infrastructure has its own unique characteristics and challenges, so we’ve adapted PEI’s tested metric to fit the profile of this growing asset class. For one, we wanted the ranking to be more inclusive than just private fund managers, since they are, in the broader scheme of things, relatively new arrivals to the asset class. For the better part of the last 15 years, European infrastructure developers and large Canadian and Australian pension plans have been actively pursuing equity investments in the asset class. So any ranking that left them out of the picture would be, at best, incomplete and, at worst, misleading.
But herein lies the challenge: view them together and it soon becomes clear that measuring-up fund managers, pensions and infrastructure developers presents its own challenge. How do you consistently measure amount of direct-investment capital they’ve created over the past five years? A fund manager will hit the fundraising trail and raise capital from institutional investors. Rather than raising capital, a pension investor will devote the capital formed from his pension plan participants, while a developer will take an equity stake in a project out of the company’s balance sheet.
That’s three different ways of forming equity capital for investment in infrastructure. But there is one over-arching common element: in each case, the asset class participant is forming direct capital for investment in the asset class. Consider that there are trillions of capital needed for investment in infrastructure globally, and it seems like as good a metric to use as any in stacking up infrastructure investors against each other.
So for our inaugural The Infrastructure Investor 30 ranking, we went in search of the answer to the question, “How much infrastructure direct-investment capital has your firm formed since 1 January 2005?” The key terms of this question were defined as follows:
- “Infrastructure”: We defined infrastructure-style investing as committing equity capital toward tangible, physical assets, whether existing (brownfield) or development-phase (greenfield) that are expected to exhibit stable, predictable cashflows over a long-term investment horizon. We did not require that the investors seek to own the assets in perpetuity. However, we did require that they dedicate their investment programmes toward the pursuit of assets and projects that exhibit cashflow stability and predictability and did not count large one-off opportunistic investments in the asset class (for example: Warren Buffett’s $26 billion buyout of railroad operator BNSF did not make him one of the largest infrastructure investors in the world).
“Direct-investment capital”: We recognized that different players in the asset class will deploy capital in different ways. The end, goal, though, is the same: capital flows from investors into infrastructure assets, whether they be a concession backed by a developer, an infrastructure fund portfolio company or a utility jointly purchased by a group of pensions and infrastructure funds. So we defined direct-investment capital as equity raised by infrastructure fund managers, whether listed (via IPO or follow-on offering) or unlisted (private placement); equity committed to infrastructure funds by pensions or directly invested in infrastructure by the pensions themselves; equity invested in concessions or projects by infrastructure developers.
“Formed”: This meant that the equity capital was definitively committed to an infrastructure fund or directly invested in an infrastructure project, concession or business between 1 January, 2005 and 14 May 2010, when our issue went to press. By definitively committed, we meant that the fund commitment had been signed (not a soft circle commitment) or that the direct investment has reached financial close, not that it has been agreed to or reached commercial close.
Additionally, in the interest of being fair and consistent, there were several types of equity that we excluded from our ranking, among them funds of funds, separate accounts, club deals, primarily private equity- and real estate-focused funds, debt investment funds and hedge funds. In doing so, our hope was to get as close as we could to a measure of direct investment capital formed and as pure a focus on infrastructure as we could.
This methodology in hand, our team of researchers hit the books, scouring annual reports, financial statements, fundraising databases and press releases to piece together our “five year infrastructure direct investment capital formed” total for each of more than 100 firms we identified as being sizeable participants in the asset class. We then reached out to each of the firms with our total in hope of verifying our research (you may have gotten an email from one of our researchers, in which case, thank you for your participation). On the pages that follow, you’ll find the fruits of our labours, as well as detailed analysis of the results.
We are certain that not all of our readers will agree with our methodology and we’re cognizant that we haven’t been able to pinpoint every piece of information we need to build a pristine list. But we are certain that we have been dogged in our pursuit of the best available information and we’ve endeavoured to apply the above methodology in as consistent and exacting a fashion as possible.
We hope you’ll find our first annual the Infrastructure Investor 30 ranking a useful and compelling reference point as we continue to track and monitor this interesting and ever-expanding asset class.