Lower fundraising total has a silver lining

Less capital was raised and fewer funds closed this year, but they packed a bigger punch than in previous years.

Last year started with a bang when Global Infrastructure Partners closed the largest unlisted infrastructure fund ever on $15.8 billion, but was this a sign of a big fundraising year to come?

The answer was mixed.

First, the glass-half-empty view: 53 percent fewer infrastructure funds held a final close as of 30 November 2017 than in 2016, according to preliminary Infrastructure Investor data. The fundraising drop is more apparent when going back to the record year that was 2015, when over 120 funds closed on more than a combined $88 billion.

Now, the glass-half-full perspective: the 52 funds that closed till end of November 2017 had raised only $13 billion less than 2016’s 90, which is another way of saying that fewer funds are packing a bigger punch.

The average fund size to close in 2016 was $887 million. The average in 2017 was $1.3 billion. The total without GIP III’s outsized influence was $998 million.

How much impact did GIP’s fundraise have on the yearly figures? Here’s some context: the next four funds closed in 2017 combined did not reach GIP’s $15.8 billion. At the year’s midway point, nearly half of all unlisted infrastructure equity raised was committed to GIP III.

The fund’s January close set off a debate among investors about the merits of infrastructure mega-funds and if that’s where the market is heading. LPs that write large cheques can take a decent stake in a $15.8 billion fund without fear of lacking portfolio diversification. However, some smaller investors worry their commitment will be drowned by larger interests.

There have also been questions about dealflow, whether enough assets are available for the capital GIP III-sized funds must invest. The firm has so far put that question to rest with big 2017 acquisitions, including its part in a consortium paying $5 billion for Equis Energy and a $1.8 billion purchase of a West Texas midstream company.

It’s important to note that several firms have been raising sizeable funds throughout the year that are expected to close in early 2018. Stonepeak Infrastructure Fund III is likely to hit its $7 billion hard-cap and I Squared Capital is also on track to hit its $6.5 billion ceiling, for example. There is also the launch of Blackstone’s infrastructure programme, which received a $20 billion commitment from Saudi Arabia’s Public Investment Fund.

Whether 2017 can be considered a good fundraising year is a matter of debate. Milestones were reached and the asset class certainly drew a lot of attention. But as the year drew to a close, it didn’t look on track to post as strong a set of numbers as the two years preceding it.

The silver lining is that those who did manage to raise money in 2017 will probably remember it as their most successful year to date.