Themes of the Year: The fundraising gravy train

This year’s volatility saw little effect on fundraising. That may come to change as a host of megafunds arrive in 2023.

Another quarter, another record. That was what the numbers told us as we analysed fundraising statistics at the end of Q3, revealing a nine-month fundraising total of $131.6 billion, making it the strongest Q1-Q3 to date.

Contrast that with the real asset cousin – real estate – which at the end of Q3 appeared to be on track for one of its slowest years since the GFC, and there seems plenty of reason for festive cheer, particularly if GPs manage to convince LPs that infrastructure truly is the inflation-defensive asset class they advertise it to be.

Yet market observers are pointing to darker clouds ahead for the asset class when it comes to fundraising. It’s not so much in the vein that 2022 is the last dance for infrastructure, but more that 2023 might be a waltz, rather than a quickstep.

2023 will see no shortage of demand for capital. Momentum is expected to pick up for Global Infrastructure Partners V fund targeting $25 billion; Stonepeak is said to be eyeing $20 billion for its next vehicle next year, while EQT has also confirmed it will be seeking €20 billion for its sixth infra flagship. Not to forget Brookfield Asset Management, which raised $21 billion of the $25 billion targeted for Brookfield Infrastructure Fund V by the end of Q3 and whose chief executive Bruce Flatt told a Goldman Sachs conference this month that it’ll be “raising another fund next year for sure” of its Brookfield Global Transition Fund series, the first of which raised $15 billion this year.

That’s a hefty amount of capital being chased by GPs who, historically speaking, have not always been raising flagship funds at the same time as each other. There is a concern, though, that this is overloading LPs at exactly the wrong time.

“A lot of pacing models, for pensions especially, are broken because managers have been coming to market so rapidly with significant step-ups from large-cap GPs. The result of that is there’s been a slowdown in investment activity,” Devinder Sangha, partner at LP advisory Albourne Partners, told our America Forum this month.

But it’s not just the quicker return of large-cap GPs to the market seeking even more capital that is putting a strain on LPs’ time, resources and capital, Campbell Lutyens revealed in its Q4 Infrastructure Market Update.

“It’s not only the flagship funds, but also the launch of multiple parallel strategies – core or regional funds or energy transition funds,” Campbell Lutyens’ global head of infrastructure Gordon Bajnai told Infrastructure Investor. “So overall, the demand at the moment is significantly below that of supply. We believe this imbalance is going to correct gradually during 2023, in part through new allocations supporting additional demand.”

Add to this the denominator effect – a market theme LPs across the world are grappling with – and it’s clear that investors have little room for wriggle when faced with a mountain of mega funds in 2023.

“Since asset allocation plans are usually made near year-end, much of this year’s infrastructure fundraising success is likely based on decisions made before the current market turmoil,” UBS Asset Management wrote in its 2023 infrastructure outlook. “There is a risk that next year’s fundraising environment will be more difficult than expected, as LPs are already pushing against (or have already exceeded) their infrastructure allocation targets.”

Many an LP survey typically points to investors wanting to increase allocations to infrastructure. With the wider market volatility considered, 2023 may see a distinction drawn between a desire and a capability for several investors. The question is now who will lose out?