As the secondaries market matures, every asset class is benefiting from it, either through LP-led or GP-led restructurings. Infrastructure, though, has been one of the leaders in this respect, eschewing the traditional asset-by-asset sales process to realise a fund.
Data released by Greenhill in 2019 showed that infrastructure had accounted for 17 percent of all GP-led secondaries deals in 2018. Advisory group Setter noted that purchases of stakes in infrastructure funds had grown by 62 percent in the same year.
Although secondaries is still a relatively niche part of the infrastructure investment world, it is certainly a growing one. The likes of Ardian, DIF Capital Partners and F2i have all undertaken fund-continuation transactions, selling entire portfolios to new investors or funds, while continuing to reap management benefits.
Indeed, there are specific reasons why infrastructure could be benefiting more from these trends than other asset classes.
“I think it stems from the fact that the natural life of a lot of infrastructure assets exceeds the natural life of an infrastructure fund,” James Wardlaw, vice-chairman of infrastructure at Campbell Lutyens, told us in September. “There’s a natural issue of what you do with the assets when a fund comes to the end of its life. Often, it’s with assets where there’s still runway left and there’s things a manager can do to add value.”
There remain plenty of pitfalls to avoid in order for these deals to be successful, though. Some observers retain a healthy degree of scepticism about the motives behind GP-led restructurings and how beneficial such moves are for the primary LPs.
However, there are other reasons why this nascent trend could be evolving – towards larger funds and portfolios beyond PPP assets – as the infrastructure asset class matures.
“If you have a €2 billion portfolio, that may be too big,” according to Allard Ruijs, partner at DIF. “You would need to work with so many LPs, it may be too complex a process to bring together. It would not be as homogeneous as our portfolio was – it may be more global, for example, and have many different asset types. A smaller LP universe is likely to be interested, given [the] different investment mandates and increasing complexity.”
Instead, could the future lie in single-asset continuation funds? A process is underway to transfer wireless infrastructure operator Phoenix Tower International out of a Blackstone-managed private equity fund and into a new single-asset vehicle.
Furthermore, Infrastructure Investor understands a high-profile GP is considering doing the same with one of the assets in its infrastructure fund, and giving investors the option of realising their investment or continuing to pocket yield from the successful asset.
As more of the earlier infrastructure funds mature, perhaps 2020 will deliver some more definitive answers.