The Greece effect

Infrastructure fundraising is struggling to recover – and the problems of the Eurozone are a contributory factor

“We must break the oligopoly of the ratings agencies.” This was the angry response of German finance minister Wolfgang Schauble to the news that Moody’s was downgrading Portugal’s debt – a move he saw as unnecessary and one that could potentially trigger a second bailout for the Iberian country as it seeks to bring its budget deficit under control with a tough austerity package.

It’s a sentiment that European infrastructure general partners raising new funds might be expected to have some sympathy with. As Hans Meissner, founder and managing partner of London-based EISER Infrastructure, told Infrastructure Investor earlier today: “From a timing perspective, this was extremely unhelpful.”

EISER is one of those currently on the fundraising trail, and probably doing better than most. In  March this year it reached €277 million at the first close of its second infrastructure fund. Although it still has a long way to go to reach its €1 billion target, the firm’s closing was the largest of any infrastructure fund globally in the first quarter of 2011 – a three-month period in which only just over $2 billion was raised in total according to placement agent Probitas Partners (whose second-quarter figures are due for release shortly).

But while European funds like EISER are finding a decent reception in their home regions, it’s once they travel away from home that the sales pitch gets tougher – and that has a lot to do with fears about the Eurozone crisis. “What’s your take on Greece?” is the type of question likely to surface quickly in discussions with limited partners from the US to the Far East. Given the complexities and rapidly changing nature of Europe’s debt crisis, it is perhaps not surprising that concern about it grows in relation to distance from the source of the problem – it’s arguably harder to understand from further away (not that it’s especially understandable up close).

Last year, there were signs that infrastructure fundraising was beginning to recover from the dark days following the Crisis as investors saw it as a safe, defensive play that offered inflation protection. However, there were already some signs that this recovery was being threatened by investors switching their alternative asset preference back to private equity as it was sensed that the bottom of the private equity cycle had been reached – offering strong growth for the years ahead. And now, infrastructure appears to have taken a further knock as the Eurozone crisis drags on with no near-term solution to Europe’s structural problems and more scare stories likely to emerge before the situation stabilises.

An indication of the health or otherwise of infrastructure fundraising will arrive with those Probitas figures for the second quarter. Some observers point out that first-quarter figures are always depressed by the demands of annual accounting and the fact that many investors have not worked out their allocations for the following fiscal year. There are also ‘flavour of the month’ funds, including those based in the US and focused on energy, which are attracting a lot of investor interest.

Therefore, don’t be surprised if the second-quarter figures offer some encouragement. But for European funds, the debt crisis rollercoaster is not making life any easier.