SotD 2015: Strength in numbers? 

Having ‘emerged’ in 2015, infrastructure’s mid-market is now thriving. But this brings its own challenges. 

We all know four years can feel like a long time. At this point in 2015, the Brexit referendum was only one of a number of election promises the UK’s prime minister David Cameron had to deliver on, while the prospect of Donald Trump becoming US president was something most people laughed off. 

It was also only four years ago that we examined our H1 fundraising figures to find the “emergence of the mid-market”, as we headlined it in our August 2015 issue. To reinforce the “only four years ago” sentiment, this $21 billion collection of capital – “the best result ever recorded” – also included I Squared Capital’s maiden $3 billion fundraise. 

Since then, I Squared has more than doubled its efforts to $7 billion, while our H1 fundraising stats for 2019, which do not include this year’s mega-funds, suggest the mid-market as a whole has soared since its emergence. 

 An unpredictable rise? Not quite. Our August 2015 piece noted Willis Towers Watson’s Global Alternatives Survey, published the previous month, which, among its other concerns, said the mid-market could quickly become overcrowded.  

This issue is now at the forefront of many infrastructure investors’ minds as they seek to match suitable assets with the volume of capital raised.  

Of course, some investors have since moved out of the mid-market as their fund sizes and strategies have evolved. But new entrants have taken their place, with a large number of managers continuing to spin out from the bigger investment houses. 

The current market dynamic is in stark contrast to August 2015, when we wrote that “infrastructure has not yet developed a large and thriving group of mid-market managers in the way that other asset classes such as private equity have”. That journey is now well under way. But, as one mid-market manager has attested, the infrastructure side of this capital spectrum still shows its immature side when compared with other asset classes.  

There is some confusion among LPs, the manager says, about what they feel they should be getting from a mid-market infrastructure fund, while the picture is clearer in a mid-market private equity or venture capital fund. Style drift is also more of an issue in infrastructure, where the manager believes investors have allowed GPs to raise larger funds that effectively place them outside the mid-market. While mid-market private equity funds make a larger number of deals as they get bigger, the manager is seeing larger mid-market infrastructure funds undertake the same number of deals, which are consequently larger in size. 

We wrote in August 2015 that “while the future for infrastructure’s mid-market looks encouraging, it should certainly not be taken for granted”.  

That applies now more than ever.