Heads I win, tails you lose. This one-way game gives a sense of how, in theory, aggregate demand for infrastructure should benefit from any change in the world's macroeconomic fortunes: when global GDP slows, governments seek to compensate through spending on transport and energy projects; when growth picks up, there's more money to spend on an economy's bottlenecks.
What makes more of a difference, in terms of infrastructure fundraising at least, is what influences the other side of the equation. And in today's low-inflation world, there's no secret that the key variables are benchmark interest rates: depressed as they are today, they are pushing investors' appetite for infrastructure to unseen levels, seemingly with little correlation to the underlying stock of transactable assets. Evidence of this demand surge abound, from rising allocations to the growing size of blue-chip funds.
The findings of our Q3 fundraising report (p. 49) thus come as a surprise. The total amount raised by funds closed during the first nine months of this year is down 7 percent on 2015, with the number of vehicles closed an even more sobering indicator – 53 percent down on the same period last year. Importantly, these stats include Brookfield's $14 billion third infrastructure fund, without which the totals would be much further in the red.
Should the fundraising community be worried? The answer comes in two parts. Looking at 2016, there's probably more reasons to rejoice than to panic. Our report only accounts for unlisted funds that have reached a final close, which leaves space for a number of vehicles to make a difference. Among them are Antin and EQT's latest offerings, for example, which may together collect about €6 billion. GIP III is also poised to close on at least $15 billion before the end of 2016. This could therefore end up being the largest fundraising year ever, in value terms.
Zooming in more closely on the charts provides further insights. As our freshly released II 50 also suggests, the infrastructure fundraising world is an increasingly polarised one: the top five managers pocketed as much as 42 percent of the capital raised by our ranking's 50 champions. It's probably no coincidence that many of these are at the higher-risk, higher-return end of the market, while vehicles focused on classic core assets have tended to sag. LPs wanting to gain exposure to the latter are increasingly resorting to direct investments and open-ended structures to satiate their appetite.
Taken together, these dynamics foreshadow a drastic fundraising slowdown during the first half of 2017 (if not longer), a trend that professionals we canvassed on the subject also anticipate. With the latest generation of large and mega-funds freshly raised, there will be little in the way of big closings by our usual suspects. And with LPs increasingly focused on core-plus funds – and willing to sign bigger cheques to fewer managers – there won't be much for outsiders either.
How should this make us feel? Pretty sanguine, in fact. Investor appetite is still very much here. The latest funds are being deployed at an accelerated pace so their managers will soon be back to the market. Debt vehicles are bound to gain greater prominence as well. Whether LPs' return expectations are likely to be met is another matter. But the ebb and flow of infrastructure fundraising should be read less as a sign of stress than of the asset class's enduring lumpiness.