Week in Review 2011 infrastructure fundraising preview

Folks, it is time again to plan ahead for the New Year. And if you’re one of the many infrastructure fund managers looking to raise a fund next year, you’re not alone.

According to the latest Probitas Partners listing of funds in market or coming to market in the next 12 months, there are just over 100 funds looking to raise $80 billion. So in 2011, more than ever before, winning commitments will be about playing to your competitive strengths vis-à-vis your peers and the market as a whole.

With that in mind, Infrastructure Investor quizzed the market to come up with the five major food groups institutional investors will have to choose from next year as they decide which funds to invest in. Check it out, see where you fit in and you’ll be sure to get an indication of the type of questions heading your way at your next investment committee interview.

Independents with a past

Unlike many of the first-time independent funds in the market, these are independent managers who will be pointing to the track records of their first fund as they raise fresh capital. Expect to see Highstar Capital, Global Infrastructure Partners (GIP) and SteelRiver Infrastructure Partners in this category.

Highstar Capital’s already been on the road and held a first close on $750 million toward a $3.5 billion target on its fourth fund, as we previously reported. Expect to see GIP and SteelRiver hit the roadshow circuit in full stride next year for multiple billions of dollars – GIP alone will be looking to raise $6 billion, according to the Probitas list.

For this group, past success will come with a future challenge. As limited partner appetites continue to shift toward direct investing and co-investing, large commitments from sovereign wealth funds and Canadian pensions are likely to be smaller in the future. So the independents with a past will likely be able to meet or exceed their past fund sizes only if they convince enough new investors to join the party.

Independents with chutzpah

Infrastructure is a growing asset class, so there will still be a fair amount of first-time managers out there in 2011. These are firms that will likely raise smaller amounts of capital but should not be counted out by investors.

One example in this category is Global Energy Investors. The Massachusetts-based manager is looking to raise $200 million for a renewable energy fund that will invest in fully permitted and operational commercial-scale solar and wind projects in the northeast and mid-Atlantic regions. Talk about focus.

Then there’s Water Asset Management, an independent shop that is looking for $400 million to invest in water resources and infrastructure in the US. Like Global Energy Investors, they seem to have chosen a good niche: a recent report by a non-profit think tank found that 39 municipalities are thinking of leasing or selling their water assets – more than the number of water deals completed at any other time in the last two decades.

In the hierarchy of things that help first-time managers get off the ground, a focused strategy around a compelling investment idea definitely tops the list. Call it chutzpah and expect some of these funds to gain traction in 2011.

Conversation starters

It used to be that top talent at infrastructure developers left for the private fund world to invest in infrastructure (witness, for example, Kohlberg Kravis’ Roberts hiring in 2008 of former Skanska chief Simon Hipperson). That could change in 2011.

Balfour Beatty, the giant UK developer recently confirmed – as first reported on Infrastructure Investor – that it would seed an infrastructure fund that will seek to raise between £500 million (€597 million, $782 million) and £750 million. The twist is that, contrary to what you might expect, the fund will be looking to invest in brownfield, or existing assets, as opposed to the new-construction greenfield-type investments that have been the traditional bread and butter of developers.

Fellow UK developer John Laing recently listed its own £270 million infrastructure fund as well. Only time will tell whether others will follow and whether they will employ a similar strategy of investing in operational assets. But the trend reminds this reporter of a conversation he had with a frustrated market observer in 2008, who said pensions and developers aren’t talking and if they did, they’d be raising their own funds. That conversation may start in earnest in 2011.

The evergreens

There are also managers in the market who always at some point have some infrastructure fund somewhere raising money. Call them the evergreens: groups like Macquarie – which will have at least seven funds in market next year – and JPMorgan Asset Management which, thanks to its use of evergreen fund structures, is always open for business.

Among the Macquarie funds will be Macquarie’s fourth European infrastructure fund, which will be seeking to raise between €1.5 billion and €2 billion, as well as a renewable energy fund, Macquarie Renewable Energy Infrastructure Fund, which is seeking $600 million, according to the Probitas list.

Expect to see other bank-affiliated funds in the market as well. Morgan Stanley Infrastructure Partners will likely re-enter the market next year and RREEF, the alternative investment arm of Deutsche Bank, is in the market with its second pan-European infrastructure fund, targeting €3 billion.

The private equity shops

Last, but certainly not least, as institutional investors continue their steady march toward alternatives, private equity firms will continue their steady march toward infrastructure.

Names like CVC, Blackstone and KKR have already been in the market with their funds for nearly two years. Expect to see them continue to get traction in the new year: CVC is aiming to hold a first close on its €2 billion infrastructure fund early next year , as we previously reported, and Blackstone may follow-up on its $200 million interim first close from February with a larger amount. And KKR ‘s infrastructure fund has now surpassed $500 million in total commitments.

These three marquee private equity firms will likely be joined by other private equity firm-affiliated fund offerings next year. Expect to see AXA Private Equity in the market with a €1.5 billion successor to its second infrastructure fund and look for 3i to raise a second Indian infrastructure fund targeting $1.2 billion.

The afterthought

Have a look at the above groups again and another item might strike you as interesting. There is arguably no better time to be an institutional investor interested in infrastructure.

If having too much choice can be considered a bad thing, that’s arguably the one downside for institutional investors in 2011.