There are more investment managers seeking more money for infrastructure than ever before, but investors are committing less money to the asset class and demanding lower fees, according to the newest survey of institutional investors published placement agent Probitas Partners.
Probitas’ latest round-up of funds in market or thought to be coming to market in the next 12 months lists 99 funds seeking a total of $110 billion, up from 63 funds seeking $94 billion at around the same time last year.
But while the number of funds in the market is going up, the amount of money raised is still going down on a year-over-year basis. Only $6.3 billion was raised for infrastructure through in the first nine months of this year, with $1.6 billion of that coming in the first quarter, $2.4 billion in the second quarter and $1.3 billion in the third quarter. In the first nine months of last year, infrastructure funds had raised $21.5 billion, according to Probitas.
And investors seeking capital should be prepared to encounter preferences such as lower fees, closed-end fund structures and independent management teams, though it remains as important as ever to tailor preferences to specific strategies within the asset class, according to the survey.
No simple answers on fees
The survey of 160 institutional investors in the asset class revealed that 77 percent thought management fees for brownfield-focused infrastructure funds should be less than 1.25 percent, while 43 percent said 1 percent or less. And more than 50 percent believed brownfield funds should charge carried interest, or performance fees, of 10 percent or less.
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Brownfields, or existing infrastructure assets, are often thought of as safer, lower-yielding investments because of their mature operational status, versus greenfields, or assets that have yet to be built. This was reflected in Probitas’ survey: 64 percent of investors interested in brownfields said they are targeting net returns of 10 percent to 12.5 percent per year, while investors preferring greenfields said they are targeting 12.5 percent to 17.5 percent. But investors were also willing to pay more to execute a greenfield strategy, with 30.4 percent saying they think greenfield funds should charge management fees between 1.25 percent and 1.5 percent.
“You can’t just say that management fees for infrastructure funds should be – pick a number, say 1 percent. Because what you’re really going to have [to look at] is: what is the underlying strategy of the fund, what is its risk-return profile, and how are you calculating that 1 percent?” said Kelly DePonte, a partner at the San Francisco-based firm.
“There’s nothing in this market that is simplistic,” he added.
Digging in on fund structures
Probitas’ survey also found no clear investor preference for fund structure. Nearly 29 percent of respondents said they preferred a standard 10-year private equity-style fund structure, up from 24 percent in last year’s survey. On the other end of the spectrum, open-end or evergreen funds, which have unlimited life, were preferred by 13.4 percent of respondents, down from 16.7 percent in last year’s survey.
“I would have expected more interested in evergreens, but that certainly was not the case,” DePonte said. “Ten-year structures really seem to have dug themselves in in this market and it will take longer to change than I would have expected,” he added.
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One preference, though, which seemed pretty clear from the survey was investing in independent infrastructure funds, or funds owned by an run by investment professionals unaffiliated with outside sponsors, such as investment banks. This year, 71.8 percent of respondents said they preferred investing in independent funds, versus 58.2 percent last year. Sponsored funds, or funds owned by larger financial institutions, were preferred only by 8.1 percent of respondents, versus 23.7 percent last year.
“Really big shifts, and the biggest reason for that, in informal chats with people, basically is they look at what happened with funds raised by Babcock & Brown and Allco, and even some of the funds raised by Macquarie . . . all of a sudden the person you thought was sponsoring the fund is having real problems and what you perceived as a benefit is no longer there,” DePonte said.
Babcock and Allco are Australian asset managers which collapsed in 2008 and 2009, respectively, leaving their funds to spin-out in order to survive on their own. Macquarie, a global investment bank based in Australia, has survived the financial crisis but has been cutting ties with its externally managed funds, often in exchange for hefty separation fees.
Strong interest
Despite these hiccups, infrastructure is still popular among institutional investors. Respondents to Probitas’ survey ranked it third – behind distressed debt and US middle-market buyout funds – in terms of what asset classes they will focus on next year.
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DePonte warned that the survey was targeted at people with a strong interest in infrastructure. So among a broader audience, it might not rank as high. But infrastructure is likely to remain a hot among limited partners (LPs) looking to put capital to work.
“There is still a lot of interest in the sector from LPs,” DePonte said.
The latest Probitas fundraising list, re-ranked by target size and converted at spot rates as of press time into US dollars, is reproduced below. The list excludes funds currently being placed by Probitas.
| Rank | Fund Name |
Target Size | Target Currency | Target in |
| 1 | GS Infrastructure Partners II | 7,500 | USD | 7,500 |
| 2 | Macquarie European Infrastructure Fund III | 5,000 | EUR | 7,474 |
| 3 | Alinda Infrastructure Fund II | 5,000 | USD | 5,000 |
| 4 | The Waste Resource Fund | 3,000 | EUR | 4,484 |
| 5 | RREEF Pan-European Infrastructure Fund II | 3,000 | EUR | 4,484 |
| 6 | KKR Infrastructure Fund | 4,000 | USD | 4,000 |
| 7 | Macquarie Infrastructure Partners II | 4,000 | USD | 4,000 |
| 8 | Energy Capital Partners II | 3,500 | USD | 3,500 |
| 9 | aAIM Infrastructure Fund | 2,000 | GBP | 3,314 |
| 10 | ArcLight Energy Partners Fund V | 3,000 | USD | 3,000 |
| 11 | Blackstone Infrastructure Fund | 3,000 | USD | 3,000 |
| 12 | CVC European Infrastructure Fund | 2,000 | EUR | 2,990 |
| 13 | Fortis Investment Successor Infrastructure Fund | 2,000 | EUR | 2,990 |
| 14 | Macquarie State Bank of India Infrastructure Fund | 2,000 | USD | 2,000 |
| 15 | LambdaStar Infrastructure Partners | 1,500 | USD | 1,500 |
| 16 | United States Power Fund IV | 1,500 | USD | 1,500 |
| 17 | Macquarie Everbright China Infrastructure Fund | 1,500 | USD | 1,500 |
| 18 | Macquarie Renaissance Infrastructure Fund | 1,500 | USD | 1,500 |
| 19 | Antin Infrastructure Fund | 1,000 | EUR | 1,495 |
| 20 | Cube Infrastructure Fund | 1,000 | EUR | 1,495 |
| 21 | InfraMed | 1,000 | EUR | 1,495 |
| 22 | Henderson Infrastructure III | 800 | GBP | 1,326 |
| 23 | Barclays Integrated Infrastructure Fund | 800 | GBP | 1,326 |
| 24 | Emerald Infrastructure Development Fund | 750 | EUR | 1,121 |
| 25 | Neuberger Global Infrastructure Partners | 1,000 | USD | 1,000 |
| 26 | Alterna Core Capital Asset Fund | 1,000 | USD | 1,000 |
| 27 | USRG Power and Biofuels Fund III | 1,000 | USD | 1,000 |
| 28 | CPG China Toll Road Fund | 1,000 | USD | 1,000 |
| 29 | IDFC India Infrastructure Fund | 1,000 | USD | 1,000 |
| 30 | India Infrastructure Advantage Fund | 1,000 | USD | 1,000 |
| 31 | JPMorgan AIRRO Fund | 1,000 | USD | 1,000 |
| 32 | Principle Europa Indian Infrastructure Fund | 1,000 | USD | 1,000 |
| 33 | ADCB Macquarie Infrastructure Fund | 1,000 | USD | 1,000 |
| 34 | EMP Energy Fund | 1,000 | USD | 1,000 |
| 35 | Saudi Infrastructure Fund | 1,000 | USD | 1,000 |
| 36 | Troika Infrastructure Fund | 1,000 | USD | 1,000 |
| 37 | InfraVia | 600 | EUR | 897 |
| 38 | Panda Global Energy & Renewable Fund | 800 | USD | 800 |
| 39 | SC-IL&FS Asia Infrastructure Growth Fund | 800 | USD | 800 |
| 40 | Latin Power IV | 800 | USD | 800 |
| 41 | EnCap Energy Infrastructure | 750 | USD | 750 |
| 42 | Asian Giants Infrastructure Fund | 750 | USD | 750 |
| 43 | WLR China Energy Infrastructure Fund | 750 | USD | 750 |
| 44 | Infrastructure Fund of Colombia | 750 | USD | 750 |
| 45 | HSBC Environtmental Infrastructure Fund | 500 | EUR | 747 |
| 46 | DIF Infrastructure Fund II | 500 | EUR | 747 |
| 47 | Fortman City Development Infrastructure Fund | 4,500 | CNY | 660 |
| 48 | Challenger Mitsui Emerging Markets Infrastructure Fund | 650 | USD | 650 |
| 49 | ADIC-UBS Infrastructure Fund | 600 | USD | 600 |
| 50 | Beehive Water & Waste Fund | 400 | EUR | 598 |
| 51 | Fortis Clean Energy Fund | 400 | EUR | 598 |
| 52 | Robo Bouwfonds Communication Infrastructure Fund | 375 | EUR | 561 |
| 53 | Rockland Power Partners | 500 | USD | 500 |
| 54 | Aviva European Renewable Energy | 500 | USD | 500 |
| 55 | China AME Energy Fund | 500 | USD | 500 |
| 56 | China and Pacific Rim Water Infrastructure Fund | 500 | USD | 500 |
| 57 | CIMB Islamic Infrastructure Fund | 500 | USD | 500 |
| 58 | Indochina Infrastructure Holdings | 500 | USD | 500 |
| 59 | Q India PE Fund | 500 | USD | 500 |
| 60 | African Energy Infrastructure Fund | 500 | USD | 500 |
| 61 | Manara Infrastructure Fund | 500 | USD | 500 |
| 62 | MENA Infrastructure Fund | 500 | USD | 500 |
| 63 | Mubadala Infrastructure Partners Fund | 500 | USD | 500 |
| 64 | Islamic Infrastructure Fund | 500 | USD | 500 |
| 65 | Dalmore Capital Fund | 300 | GBP | 497 |
| 66 | Foresight Environmental Infrastructure Fund | 300 | GBP | 497 |
| 67 | Plenary Investment Management | 500 | AUD | 465 |
| 68 | Axis India Fund | 400 | USD | 400 |
| 69 | MAP Clean Energy Fund | 400 | USD | 400 |
| 70 | Bunyah GCC Infrastructure Fund | 400 | USD | 400 |
| 71 | Brookfield Colombian Infrastructure Fund | 400 | USD | 400 |
| 72 | EUROFIDEME 2 | 250 | EUR | 374 |
| 73 | European Renewable Energy Fund | 250 | EUR | 374 |
| 74 | Foresight Solar Fund 2 | 250 | EUR | 374 |
| 75 | Public Infrastructure Partnership Fund | 500 | NZD | 369 |
| 76 | AmKonzen Asia Water Fund | 320 | USD | 320 |
| 77 | Water Property Investors | 300 | USD | 300 |
| 78 | Eredene Capital India Infrastructure Fund | 300 | USD | 300 |
| 79 | GCC Energy Fund | 300 | USD | 300 |
| 80 | Darby Colombia Transportation Fund | 300 | USD | 300 |
| 81 | Darby Latin America Mezzanine Fund II | 300 | USD | 300 |
| 82 | Leveraged Green Energy Fund | 250 | USD | 250 |
| 83 | Brookfield Americas Infrastructure Fund | 250 | USD | 250 |
| 84 | EstCapital Real Energy | 150 | EUR | 224 |
| 85 | Equitix Fund I | 125 | GBP | 207 |
| 86 | Alcazar Capital India Fund | 200 | USD | 200 |
| 87 | Piramal Healthcare Fund | 200 | USD | 200 |
| 88 | PSource China Infrastructure | 200 | USD | 200 |
| 89 | Aravis Energy I | 125 | EUR | 187 |
| 90 | Aleltho Renewable Energy Fund | 175 | GPB | 175 |
| 91 | Central American Mezzanine Infrastructure Fund | 150 | USD | 150 |
| 92 | ENERCAP I | 150 | USD | 150 |
| 93 | Foresight European Solar | 100 | EUR | 149 |
| 94 | Mekong Brahmaputra Clean Development Fund | 100 | USD | 100 |
| 95 | ND Infrastructure Fund I | 100 | USD | 100 |
| 96 | PTC India | TBA | – | TBA |
| 97 | SREI Infrastructure | TBA | – | TBA |
| 98 | VinaCapital | TBA | – | TBA |
| 99 | CITIC-Kazyna Investment Fund | TBA | – | TBA |
| Total: | 110,362 |
| Notes: 1 EUR = 1.49 USD; 1 GBP = 1.66 USD; 1 AUD = .93 USD; 1 NZD = .74 USD; 1 CNY = .15 USD Figures current as of press time. Source: Probitas Partners |
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