It’s all about execution now

Another day, another hard-cap smashed, most recently by French fund manager InfraVia, who, having started with a €750 million target and a €900 million hard-cap, ended up raising a cool €1 billion for its third unlisted infrastructure fund.

In the current infrastructure fundraising environment (assuming you have a good track record) targets are routinely blown to smithereens and hard-caps look surprisingly soft. The way things are going, targets seem more like conservative guidelines. As for hard-caps, they seem very far from an absolute ceiling. In fact, they pretty much look like targets.

In a way, this is good news for managers. Anyone who hit the fundraising trail in, say, 2010 or 2011 will remember how hard it was to raise money – even if you already had some success under your belt. Now, with the amount of new money chasing infrastructure, those days are gone.

Vincent Levita, InfraVia’s co-founder, chief executive and chief investment officer told us that it raised its latest fund’s €900 million hard-cap to accommodate new investors from Asia and the Middle East. Asian capital was equally prominent in Brookfield’s recent record-breaking fundraise, with 20 Asian investors making up about 20 percent of its third unlisted infrastructure fund.

Brookfield offers another example of a manager who started with a target – $10 billion – and a hard-cap – $12 billion – and ended up raising $14 billion for the largest unlisted infrastructure fund ever raised.

With successful managers able to raise their funds with relative ease in 2016, the question now is how successfully they can deploy their money. Of course, execution has always been key, but the stakes are higher than ever.

Tellingly, investors seem to think the same. In Probitas Partners’ latest survey, LPs told the placement agent that what keeps them up at night is the amount of new money coming into the sector and its effect future returns; in 2010, their biggest concern was the lack of experienced infrastructure fund managers.

And then there’s the amount of dry powder, which Probitas placed at $140 billion as at the end of August, up from $106 billion in 2015. To put that figure into perspective, that’s about 2.4x the $58 million raised by unlisted infrastructure funds last year, according to Infrastructure Investor.

Curiously, it doesn’t seem like it’s the mega-funds like Brookfield’s that are contributing to that accumulation. In our keynote interview with Brookfield in our October issue, infrastructure chief executive Sam Pollock told us that its record fundraise was as much driven by dealflow as investor interest. So far, Brookfield seems to be making good on that premise, closing deal after deal from Fund III, the latest the $5.2 billion acquisition of Petrobras’s gas distribution network, for which it wrote a hefty $825 million equity cheque.

Still, that dry powder keeps increasing, which means there are managers out there that are less successful on the execution front. The trouble is, the capital currently chasing infrastructure will, at some point, want to see the results it was promised. Managers’ ability to deliver on that promise as more and more money flows into the asset class will be key to infrastructure’s future. ?