Too many eggs in one basket? Weekly 2

With few fund options as they seek to hit their allocation targets, investors are backing popular managers to the hilt.

It started with a whimper, but infrastructure fundraising in 2015 may go out with a bang. 

Sources canvassed recently by Infrastructure Investor advised that some big beasts will likely be coming back to market either later this year or early in 2016. Among them could be the two biggest of all – Global Infrastructure Partners (GIP) and Brookfield Asset Management (Brookfield). 

Neither of the fund managers are at liberty to comment on fundraising plans, but our sources reckon that between them, the heavyweights could gather around $22 billion next time – the estimate being around $12 billion in GIP’s case and $10 billion for Brookfield. We stress these figures are based on guesses of what might happen, but from experienced and credible sources. 

Such a glut of fresh capital would certainly deliver a shot in the arm to a fundraising market that has struggled for momentum so far this year. According to Infrastructure Investor Research & Analytics, 14 unlisted infrastructure funds announced final closes in the first quarter of this year, totalling $10.7 billion. This compared with $12.6 billion for the same period a year earlier. 

But while a GIP/Brookfield double whammy could in the blink of an eye transform the fundraising market’s fortunes, it would also raise the prospect of concentration risk for limited partners (LPs). After all, our sources also expressed the view that even the astronomic numbers given above could be raised quickly – with most of the capital coming from a small group of investors. There is even speculation that some backers – when you take into account total commitments, including co-invest arrangements – could be prepared to stump up as much as $1 billion each. 

What is clear as a general observation of the market is that, while appetite for infrastructure remains very strong, opportunities to invest in top-notch funds are few and far between. If a manager has a proven track record and a high level of trust, LPs will swarm around it like bees round a honey pot. 

This trend has been exacerbated by the ambitious infrastructure allocation targets that many organisations have put in place, which creates pressure to get the capital out of the door. This pressure can be seen not just in the primary market for infrastructure but also in the secondary market, where appetite is helping to drive up pricing. One secondary market observer told us that, in the space of six months, he has seen the average price on infrastructure sales move from around minus 15 percent to par. 

It is clear that plenty of pent-up capital wants to find a home in infrastructure. But it is not equally as clear that investors can achieve the degree of diversification that they would like.