Super-size infra

We take a look back at a historic 2016 that will almost certainly be remembered as the year private infrastructure funds took a quantum leap in size.

On a global geopolitical level, 2016 packed a hearty punch and while many are probably looking forward to putting this year behind them, there is no question that it will become known as one of the most momentous years of the 21st century.
 
Within the narrower confines of the infrastructure asset class, 2016 will probably end up being remembered as the year private infrastructure funds got really big. At the time of writing, Brookfield Asset Management stands peerless with its record-breaking $14 billion raise , but Global Infrastructure Partners is right there behind it and will, in all likelihood, surpass that total once it closes its latest vehicle.
 
It's worth pausing for a second to revisit this stunning achievement, because Brookfield Infrastructure III is not just infrastructure's biggest unlisted fund – it's also the largest private fund Brookfield has ever raised. What's more, BIF III managed to be greater than the combined flagship real estate ($9 billion) and private equity ($4 billion) funds the manager closed in the 18 months prior to it.
 
This is important not just in a tub-thumping, 'my asset class is bigger than yours' sort of way, but because of the trends it heralds. Yes, Brookfield's record raise is undoubtedly the result of the intense attention infrastructure is attracting all over the world. And yes, this is a rising tide that's lifting all boats (just look at Antin's recently closed €3.6 billion infrastructure fund , which almost doubled the size of its predecessor after just five months on the road).
 
But the most interesting thing Brookield's raise says about the market is that, for all the talk of return compression and overheating in the large-cap space, investors are seeing considerable amounts of dealflow they want to capitalise on. Significantly, by putting their money into BIF III and GIP III, they are also recognising how important it is to have a manager with the requisite experience to make good on those opportunities.
 
When we caught up with Brookfield Infrastructure chief executive Sam Pollock shortly after BIF III closed, he told us the biggest change from Fund II to Fund III “is that the deals that are out there are larger than they used to be”. By then, Fund III had already invested several billions of dollars into precisely those kinds of large deals, including systemic assets like Colombian power company Isagen, which generates some 20 percent of that country's electricity. And it's kept a brisk investment pace since.
 
That's not to say that infrastructure's supply/demand equation is perfectly balanced, though; or that pockets of the market aren't overheated. But the idea that there's a wall of capital descending on the asset class with nowhere to go is often overblown. To add to that, the case for infrastructure investment as a key growth driver is getting stronger by the day, with all eyes now on the US to see if will make good on recent promises of infrastructure spending. If it does and its initiatives are replicated around the world, BIF III and GIP III might not stand peerless for long.
 
That's perhaps the most promising trend to come out of 2016, but it's by no means the only one. Over the holiday period, we will be publishing several outlook pieces on some of the key developments we believe will have a major impact on the asset class going forward.
 
In the meantime, as you prepare to wind down and enjoy a well-deserved break, we urge you not to forget to vote for our global awards. As you can see here , voting is heating up, so don't miss your chance to pick the people and the firms that have made a real difference in 2016.
 
Happy holidays!
 
Write to the author at bruno.a@peimedia.com