The right stuff

A lot of the growth segmentation opens up will be capitalised on by existing managers – which is why a good track record is more important than ever.

Don’t let anyone tell you otherwise – 2018 is a great time to be a fund manager with a solid track record.

Just look at two fund closings we recently reported on: Ardian’s debut Americas fund and DIF’s fifth flagship vehicle, both wrapping up well above target on just over $800 million and €1.9 billion respectively.

Let’s start with Ardian. What infrastructure head Matthias Burghardt and his team accomplished in North America – particularly in the US – will, we suspect, end up having long-lasting consequences for European fund managers.

As many fund managers who have crossed the Atlantic can attest, raising funds from US LPs can be remarkably difficult. So, to find that nearly half of the LPs in Ardian’s Americas fund are from North America is quite an achievement.

“We have a lot of US investors, which we didn’t expect at all,” Burghardt admitted to us. “We thought US investors have a lot of US exposure and they tend to work with US GPs, so why would they want to go with a European fund manager to invest in the US?”

The answer, partly, is that Ardian went to North America to be Ardian. That is, to execute the same mid-cap strategy it has pulled off countless times in Europe, over four funds, two of which have been fully realised. The other half of that was discovering it had the good fortune of entering a market where there weren’t any Ardians around.

“You either have very large fund managers, like Brookfield or Global Infrastructure Partners, who have global mega-funds of $10 billion or more. For mid-cap transactions, you mainly have energy funds, but their risk profiles are quite different, taking on much more private equity-like risk,” explains Burghardt.

“So, having someone like us, targeting mid-cap transactions where there is probably less competition, with a moderate risk profile, yield and good performance – there aren’t that many players,” he adds.

The story is not dissimilar for DIF V. At €1.9 billion, it’s one of the largest PPP funds ever raised, considering two-thirds of its capital will target PPPs, at a time when that market is rather lumpy, to put it charitably. But DIF has been around for many years, consistently delivering on its strategy with, like Ardian, a couple of successful fund realisations under its belt. Also like Ardian, it branched out last November, when it closed its first core infrastructure fund on its €450 million hard-cap.

Why is this important? Because the LP universe is dramatically expanding at a time when the asset class, like real estate and private equity before it, is segmenting. With LPs keen to back managers with an established track record, a lot of the growth segmentation creates will be capitalised on by these established players – and not first-time managers.

Look no further than last month’s announcement by Brookfield – which has raised the industry’s second-largest closed-ended fund and is now raising an open-ended core vehicle – as another example of this trend.

That’s also why we took such a light-hearted approach to the drop in fundraising shown in our Q1 figures. Setting aside the limitations of tracking funds closed by quarter and the fact that one can always add or subtract a few billion depending on one’s definition of infrastructure (anyone who claims that definition is set in stone is seriously out of touch with the market), the trend is up, up, up.

As Brookfield infrastructure boss Sam Pollock put it: “Based on our contacts with investors, the appetite for infrastructure product is massive.” That’s what we’re hearing, too. And those with a good story to tell will be the ones surfing that massive wave.