The world’s 3.5 billion viewers expected a special tournament, and few were disappointed. The World Cup 2014 saw a record number of goals, tropical temperatures, anguish for some players and consecration for others. But what surprised most was that so many of the bigger teams fared so poorly, providing outsiders with their moment in the sun. Spain, Italy and England failed to make it past the group stages; while Brazil spectacularly collapsed in the semi-final. It seemed a new order had emerged where future success could not be guaranteed by past glories on other fields.
This new era has arguably already come to pass in infrastructure fundraising. Take the case of CVC Capital Partners, for example. The London-based firm is one of the best-known private equity (PE) managers: its impressive track record at exceeding limited partners’ expectations allowed it to close a €10.5 billion fund in 2013, the largest European vehicle raised since the financial crisis. And yet its attempts at replicating this prowess in infrastructure, spread over nearly five years, never quite gathered momentum. Shortly after the departure of Stephen Vineburg, its head of infrastructure, the firm decided to wind down the strategy in the summer.
Some say CVC’s failure had a lot to do with timing. The firm launched its fundraising attempt, with a target of €2 billion, in 2008 – just as the financial crisis was starting to shake investor confidence and cast dark clouds over the fundraising climate. Neither was the firm alone on the trail: at the time, more established players such as Deutsche Bank’s RREEF and Paris-based Antin were also courting investors for significant amounts of money. “Fundraising is very black and white. It’s very hard to pick up momentum if you don’t have it from the start,” comments one investor relations professional.
But more specific explanations are also given. A partner at a large-cap European firm thinks investors found it hard to understand how CVC’s infrastructure and private equity strategy would divide assets among themselves. It didn’t help to clarify matters that CVC, in support of its new fund, initially gave examples of infrastructure-like transactions it had previously done from within its PE practice. It perhaps further blurred boundaries, a source suggests, when it subsequently used its buyout fund to buy a chunk of Spanish developer Abertis. “There was always a doubt that the infrastructure team would inherit the assets the buyout guys don’t want.”
The early entry to the fund of APG Asset Management, the €369 billion Dutch pension administrator, may also have caused concerns. “They must have negotiated hard on terms,” says a market insider. “And having APG in a fund can scare off other investors. Does it mean the manager will have to offer them co-invest [opportunities] or be pushed to make decisions that are not carefully thought through?” A similar issue may have arisen when CVC abandoned fundraising, instead moving to a managed account approach centered on four core investors. These would likely have had a strong say in the firm’s investment committee, which may have detracted others from joining would-be club deals.
Yet the main problem, as in football, seems to have been the team itself. “We looked at CVC on the infra side three or four years ago. Our feeling was that it was not really the most experienced team, and we prefer to go with experience rather than a new team under an umbrella,” says a European fund of funds manager. Another fund executive admits that other large buyout firms, such as Kohlberg Kravis Roberts and The Carlyle Group, have successfully closed their own infrastructure funds. But he reckons they’ve had to keep their vehicles relatively small – and cede ground on fees. “Just because you’ve got a good brand doesn’t mean everything you do is going to be successful. In fact in a number of instances it hasn’t been.”
Something else may have been lacking: home advantage. The fund of funds manager explains how first-time infrastructure funds sometimes pull it off thanks to strong domestic support. “Time and time again some less experienced managers raise money from the French that perhaps they couldn’t have raised elsewhere. But in the UK or the US the field is much more open: we’re not necessarily looking for local managers to invest in the whole of the world.”