We are living in a digital world – so when will sector fundraising pick up?

With multiple billions transacted this year alone, we look into why dedicated digital infra GPs are still relatively few.

If you read our recent Q1-Q3 fundraising report, you will have picked up on the strength of renewables-focused fundraising, which accounted for over $22 billion of the $81 billion raised during the first nine months of the year. Unsurprisingly, the biggest vehicle to close during that period was a dedicated renewables strategy – Copenhagen Infrastructure Partners IV, which closed on its €7 billion hard-cap.

So, it would be entirely reasonable to expect the biggest sector-focused strategy to close this year to be dedicated to renewables. However, things don’t appear to be headed that way. As we reported in Monday’s The Pipeline, DigitalBridge’s sophomore effort – Digital Colony Partners II – has sailed past its original $6 billion target, hit its $8.1 billion hard-cap in October and is now looking to raise it to $8.6 billion, ahead of closing later this year.

If that pans out, then DCP II – not CIP IV – will be the biggest sector-focused fundraise of the year. And one of the year’s biggest fund closes full stop, potentially trailing only EQT Infrastructure V if flagship vehicles from KKR, I Squared Capital and Stonepeak Infrastructure Partners slip into a 2022 close (as we’ve heard is likely to happen for the last two).

In a way, that seems fitting. Digital infrastructure is still one of the asset class’s hottest sectors, with multiple billions transacted in 2021. This week alone, KKR and Global Infrastructure Partners – in its debut digital infra deal – took US data-centre REIT CyrusOne private for an enterprise value of $15 billion. On the same day, American Tower Corporation announced it bought North American data centre operator CoreSite Realty Corporation for an enterprise value of $10 billion.

The only surprising thing, then, is that DigitalBridge is still unchallenged as the sector’s 800-pound gorilla. When looking at our data, it’s clear the manager is in a league of its own among sector-focused strategies, with even its $4 billion first fund significantly larger than other dedicated vehicles, let alone DCP II.

What’s also clear, though, is that the digital infra pack is still a small one. According to our data, just shy of $18 billion of digital infra-focused funds closed between 2018 and 2021 – as mentioned above, over $22 billion of renewables-dedicated strategies closed in the first nine months of the year alone (versus only $8 billion for digital infra strategies). That puts digital infra still quite a bit behind energy transition fundraising.

Is this surprising? Yes and no.

Renewables and the energy transition have been around for longer as an investment strategy, so it makes sense they are attracting more capital, particularly when you factor the momentum behind the energy transition. Digital infra is also a key part of generalist funds’ infra portfolios, so many LPs may feel they are getting all the exposure they need. Finally, data centres specifically attract significant amounts of capital from real estate managers – KKR, for example, bought into CyrusOne from its infra and RE strategies – meaning there might be some dedicated strategies on the RE side not reflected in our data.

Still, it feels slightly odd to see DigitalBridge stand so far apart from the rest of the pack.

After DigitalBridge closed its first vehicle in 2019, we remarked that sector-specific funds had truly arrived. That has panned out but so far mostly on the renewables side. Once dedicated digital infra strategies join the party, expect fundraising to go up a notch.

The deadline to submit your milestones for the 2021 Infrastructure Investor Awards ends tomorrow, Friday, 19 November. If you have yet to submit, please click HERE to share this year’s highlights with us.