The inaugural Infrastructure Investor 30 ranking, our first attempt at sizing the capital created for infrastructure by its core constituencies, reveals a mix of insights that both reinforce as well as challenge several core beliefs about the young-and-growing asset class.
Here are, in no particular order, five things to consider as you peruse this year’s list.
Macquarie: still on top
Chalk this up for the ‘reinforce’ column. Macquarie Group, the Sydney-based investment bank best known for its investment in infrastructure, topped our rankings this year with $30.6 billion in capital formed for the asset class. That breaks down to approximately $8.5 billion raised across listed funds, $21.7 billion across unlisted funds, and about $500 million in direct balance sheet investments by the firm over the last five years.
The ‘unlisted’ element may be the key to the firm’s success here. Macquarie has made no secret of the fact that it’s diversifying away from listed funds more toward unlisted offerings. The past year alone brought several such offerings, including Mexican, Indian and Russian funds that each enjoyed fundraising successes, holding first closes of $408 million, $1 billion and $530 million, respectively.
These country and region-specific funds undoubtedly helped Macquarie keep growing its infrastructure empire, even as it shed some of its listed funds and missed the original $6 billion fundraising target for its second US-based infrastructure fund, Macquarie Infrastructure Partners II.
Macquarie’s heft, not surprisingly, skewed the distribution of the Infrastructure Investor 30 toward Australian investors, which ended up claiming one-third of the ranking’s $140 billion in capital formed over the last five years.
A further 23 percent of the $140 billion, or about $32.2 billion, came from veteran Canadian pensions, such as the Ontario Municipal Employees Retirement System and the Ontario Teachers Pension Plan, which have long-established infrastructure investment programmes.
By the numbers – six of the Infrastructure Investor 30 hail from down under and another seven from the great white north – Australia and Canada lay claim to more than their fair share of this year’s top 30 spots (43 percent to be exact).
So there is indeed solid capital formation behind the oft-heard claim that, even if the asset class did not truly originate in either of these two countries (toll roads were a fad in Europe long before the 407 ETR and Lane Cove Tunnel), its modern-day investors will more often than not carry a Canadian or Australian accent.
Rise of the Yankees
Still, you need not necessarily have an Australian accent to make your mark on the asset class. Perhaps as an indication of a rising trend, New York was the most common headquarters for firms on this year’s Infrastructure Investor 30 ranking. And US-based firms overall laid claim to 10 of the 30 spots, including three of the top ten (Goldman Sachs, Alinda Capital Partners and Global Infrastructure Partners).
That’s still less than the combined 13 for Canada and Australia, but is certainly not an insignificant tally. And if the pension market for infrastructure opens up in the US, it could unlock tens of billions of dollars that will only add to the Yankees’ tally.
Banking on support . . . for now
Another data point in the ranking creates a standard by which we’ll be able to judge who’s right and who’s wrong in a few years’ time on an important point of debate in the asset class.
In the wake of the financial crisis, and the surprises it created for institutional investors who thought they had bought into an unsurprising asset class, many consultants and independent fund managers have wagered that captive funds, especially those managed by large international investment banks, will wane in their influence. After all, as the crisis has shown all-too-clearly, the days of bank-affiliated funds are over. Right?
For now, that is still not the case: the below-target closes of Goldman Sachs Infrastructure Partners II and Macquarie Infrastructure Partners II notwithstanding, investment banks have until now created the largest portion of the capital for the asset class, $48.6 billion, with fund managers close behind at $47.9 billion. And of the fund managers’ total, about $26.7 billion is managed by houses that would consider themselves independent (even if they had to declare independence during the crisis – see page 34 for our interview with Arcus Infrastructure Partners head Simon Gray).
If the independence apologists are right, then we’d expect the investment banks share of future Infrastructure Investor 30 rankings to fall and to see independently managed capital eventually eclipse it. Bets are on.
It is not unusual in these sorts of rankings to see a bar chart illustration of the largest investors that resembles something of a boomerang (in keeping with the Australian theme). That is, there’s a few really large players who stand out head-and-shoulders above everyone else and then the rest fall precipitously to a gentle slide down ever-closer capital formation totals. For readers familiar with our sister publications, Private Equity International and Private Equity Real Estate, you’ll recall that that’s exactly what tends to happen with their annual rankings of the largest investors in their respective asset classes.
So it’s no surprise that the same appears to have happened in infrastructure: once you get past the big investment banks and the hefty Canadians, capital formation totals drop off significantly and get closer and closer in total.
What is surprising, though – especially for an asset class as young and evolving as infrastructure – is just how pristinely it fits this pattern. When Private Equity International unveiled its first ranking of the largest 50 private equity firms in the world in 2007, the total capital raised by the top quartile was $278 billion. The remaining 75 percent raised amounted to just about the other half of the total, or $273 billion. But that was for an asset class that had had 20 years to grow and mature.
With the mushrooming of pension investors and fund managers for infrastructure only occurring in the mid-2000s, one might expect that our first five-year ranking would show evidence of a less-than perfect boomerang. But it fact it was quite the opposite: the top quartile of the Infrastructure Investor 30 raised almost exactly half the entire capital formation total. Apply another test point and the same pattern emerges: the top third raised slightly short of two-thirds of the total. And so on.
Is this a mere coincidence? Or is it evidence that the asset class is maturing faster than most people think? Only time will tell.