Q2 provides optimism for infrastructure fundraisers

The second quarter of 2011 saw infrastructure funds close on a total of $6.2 billion of fresh funding globally, bringing the total raised so far this year to $8.4 billion, according to the latest quarterly survey from placement agent Probitas Partners. The figure will encourage those on the fundraising trail after a slow opening three months when just $2.2 billion was closed.

As well as nearly tripling the first-quarter total, the final figure for Q2 2011 was also ahead of the equivalent last year, when $5.5 billion was closed. However, fundraisers still have their work cut out to match last year’s global infrastructure fundraising total of $19.0 billion, given that $8.4 billion has been collected at the halfway point.

The record fundraising year for infrastructure was the pre-Crisis $39.7 billion raised in 2007, while the post-Crisis $10.7 billion closed in 2009 was the lowest yearly total since 2005 ($5.2 billion).

The first quarter’s lowly total was thought by some observers to be something of a blip, since no substantial fund closings were achieved despite many being in the pipeline. The second quarter delivered five fund closings of more than $500 million, including the $964 million raised by Energy Investors Funds’ United States Power Fund IV and the €620 million raised by RREEF’s Pan-European Infrastructure Fund II.

In total, 21 funds had some sort of closing in the second quarter, six of these being final closings. But while the headline fundraising figure is a cause for some cheer, it is also clear that this is a climate in which fund target sizes will be hard to obtain. Of the seven funds to have achieved final closings so far this year, five have closed below target. The Probitas report points out that limited partners remain “heavily focused on fees and are pressing funds in market to reduce them”.

Issues such as concern over fees will need to be addressed if demand for infrastructure funds is to get anywhere near meeting supply. The amount of capital being sought by funds had once again increased by the end of the second quarter to over $93 billion – compared with $85 billion at the end of the first quarter and $75 billion at the end of last year.

The second-quarter figures show that nearly 90 percent of funds raised were for the developed markets of North America or Europe (or global funds with a heavy focus on these markets). Asia leads emerging markets fundraising, while Latin American fundraising appears to have fallen away after a strong 2010.

The largest area of interest for limited partners at the current time is funds pursuing both brownfield and greenfield opportunities, but with a bias to brownfield. There are fewer but larger opportunistic funds, many of which have some degree of focus on energy. Fund strategies showing signs of greater popularity include renewable energy and debt.