In a slight twist to the words of the A-Team’s legendary Colonel John ‘Hannibal’ Smith: “We love it when a plan comes together.”
Back in September, we wrote that 2018 was already the asset class’s biggest fundraising year on record, with just over $68 billion then raised by 43 funds. We also predicted the year would end with unlisted, closed-ended fundraising at or above the $80 billion mark. Well, here we are at the close of December, and our preliminary figures show a smidgeon over $80 billion raised by 51 vehicles. And there’s still room for that number to grow further, if the likes of Digital Bridge close their vehicles on the right side of 2018.
Emboldened by our predictive abilities, we are now fairly confident 2018 will be remembered as the start of a rapid expansion in the asset class’s fundraising prowess. As outlined in our Welcome to the Golden Age of Fundraising presentation, there is a very good chance 2019 will see $100 billion raised for unlisted infrastructure.
Considering the two ‘big beasts’ of the industry – Global Infrastructure Partners and Brookfield Asset Management – are currently in the market with the next iteration of their flagship funds alongside several other premier managers – think MIRA, EQT, Antin, Ardian and AMP Capital – that scenario looks very plausible indeed.
Importantly, LP appetite for the asset class is showing no sign of petering out. In sister publication PEI’s recent Perspectives 2019 survey, in which they polled 101 LPs on their intentions for the coming year, 27 percent and 61 percent said they would increase and maintain their exposure to the asset class, respectively. And why wouldn’t they, considering infrastructure has exceeded performance against benchmark for more than 51 percent of respondents, with 40 percent-plus saying it met their benchmark?
To top it all off, there is a well-documented, vast need – measured in the trillions of dollars – for infrastructure investment across a wide spectrum of the globe’s economies, from OECD stalwarts such as the US and Canada to developing markets such as India and many of the countries of Southeast Asia, offering investors a wide risk-return spectrum.
We say ‘in theory’ because, as is well known, there is a vast gap between the demand for infrastructure and the number of assets on offer that fit institutional investors’ requirements. We’re not overly pessimistic about the size of this gap, considering the amount of deal flow that is already being generated by the ongoing decarbonisation of the planet and the growing need for digital infrastructure. In addition, there are other promising sectors, such as healthcare, where growth is also expected to be strong.
Furthermore, as Blackstone touted in early presentations for its $40 billion open-ended vehicle – you can deploy very similar amounts in infrastructure and private equity these days ($329 billion versus $339 billion) with considerably less dry powder competing for deals in infrastructure ($137 billion versus $545 billion).
Still, we shouldn’t completely disregard the asset class’s supply/demand gap, particularly when heightened competition in certain sectors and markets has led to marked returns compression. Nor should we discount the effect this is having on managers, with a lively ongoing debate on what constitutes meaningful expansion of the asset class’s boundaries versus strategy drift, as firms increasingly look off the beaten path.
Finally, there’s the highly charged political environment in which everyone is having to operate, with growing restrictions on foreign investment creeping up across the globe and the threat of nationalisation in countries such as the UK – even if it’s true that a lot of these themes have been playing out for several years.
In the end, though, none of this can take away from the asset class’s large strides into the mainstream of institutional investment. Ten years after the financial crisis, infrastructure has well and truly arrived.