The placement agent view

JAMES WARDLAW, PARTNER, CAMPBELL LUTYENS

An extraordinary amount of capital was raised for infrastructure managers in 2016 and it is difficult to see 2017 reaching the same quantum raised. But there still seems to be a huge amount of capital available for those managers delivering 15 percent-plus IRRs in 2017. These strategies include the more private equity-like and funds investing at the late stage of project development. The yield differential between greenfield and brownfield has arguably never been wider and so the yield boost for those who sell when projects are operational is considerable. 

We are also seeing further opportunities to restructure funds of 2006-2008 vintages, which are coming to the end of their natural lives, through the creation of liquidity events and continuation funds. But if they do not represent a ‘win, win, win’ for existing investors, new investors and the manager, they will not proceed.

However, not all is rosy. We sense that many investors feel core, brownfield infrastructure is fully priced and that many also feel fully weighted towards energy, including renewables and midstream, and they do not necessarily want to take a view on future oil, gas or electricity prices and their impacts on the value of infrastructure assets. So fundraising for these strategies is harder.

NINA DOHR-PAWLOWITZ, CEO & HEAD OF FUND PLACEMENT, DC PLACEMENT ADVISORS

Global infrastructure platforms are a trend we expect to continue based on our very positive experience. Investors are seeking well-diversified offerings with clear, proven strategies to minimise risks and at the same time to access high-quality dealflow. However, we see only a few managers with the capacity to offer sustainable global platforms, so we should not forget local champions, albeit with a smaller capacity to deploy capital.

On the demand side, we expect to see larger institutional allocations – both for equity and debt – spurred on by the consistent search for stable and predictable cashflows as complementary to low-yielding traditional fixed income. This is also why we expect traditionally conservative investors, such as insurance companies, to increase their allocations. 

We also see an increased appetite by both investors and managers to diversify portfolios by including strategies aimed at enhancing return profiles, from greenfield add-ons to brownfield strategies on the equity side and mezzanine strategies on the debt side.

Access to deals will certainly be a continuing topic in 2017 and we assume it will lead to both managers and investors looking beyond what is regarded as infrastructure in the ‘traditional’ sense and being creative in identifying sustainable generators of solid yields.

SACHA GORNAYA, PRINCIPAL, FIRST AVENUE

Last year was another record year for infrastructure fundraising, both in terms of quantum and speed with which managers achieved their target fund sizes. Notwithstanding, the market is clearly maturing, with capital concentrating amongst a smaller pool of experienced players with demonstrated sourcing, asset management and exit abilities. 

Traditional core infrastructure continues to experience significant competitive tensions driven not only by an increase in dry powder, but more particularly by the influx of LPs acting as direct investors with matching investment and operational capabilities. The resulting return compression is pushing funds to undergo a number of changes to their strategies in order to achieve their performance objectives, at times broadening the definition of infrastructure and shifting their focus away from core towards more value-add strategies. 

Further highlighting GPs’ and LPs’ pursuit for superior returns is the increasing popularity of greenfield investing. These strategies, with typically longer fund term structures, offer investors an early entry point into an asset lifecycle, a potential for a stable long-term yield and a superior IRR in return for accepting the associated complexity. 

Finally, renewables are also at the front of LP demand, thanks to their increasing role in the global power generation mix.