Infrastructure Managers Rake in $124B for
New Fundraising Record

Feb 17, 2022 '

Infrastructure Managers Rake in $124B for
New Fundraising Record

Money poured into infrastructure funds at a record pace last year, powered by factors such as a post-pandemic rebound, a range of potential risk and return options and a wide array of investment targets – crumbling highways and bridges, 5G cell towers, data centers, renewable energy plants and battery storage installations.

EQT’s fifth infrastructure fund was by far the biggest to close last year, raising $18 billion, while Copenhagen Infrastructure Partners was next with $8.4 billion for its fourth fund. And the fundraising rush has continued in early 2022 with Stonepeak Infrastructure Partners closing its fourth North America fund at $14 billion earlier this month and Partners Group this week closing its third infrastructure fund at $6.4 billion, which it will invest alongside another $2.1 billion in separate accounts and other vehicles.

And with more and bigger managers becoming increasingly active in the space, indications are that this year will be just as strong for the asset class.

Last year had 117 infrastructure funds close overall with $124 billion in assets, according to new data from Preqin. While the fund count was down from 143 in 2020 and 147 in 2019, the total dollars raised was an
easy record, up from $113 billion in 2020 and $118 billion in 2019, per Preqin.

The average fund size was up as well, continuing a multi-year trend of larger and larger infrastructure funds. The average such fund is now about $1.5 billion, up from just $600 million in 2016, according to Campbell Lutyens data.

Some of the inflows last year were held over from the lockdown interrupted year of 2020. “Infrastructure had a strong bounce-back year after Covid impacted fund closings in 2020 and pushed out allocations to
2021,” said Eugene Park, principal at Mercury Capital Advisors.

Several other managers had large closes beyond EQT and Copenhagen’s funds, including Macquarie Infrastructure Partners, which closed its sixth Americas fund at $6.9 billion, according to Preqin data. In addition, Wren House raised $5 billion, Manulife closed its second infrastructure fund at $4.7 billion in November, and Ares Management raised $2.2 billion for its Ares Climate Infrastructure Partners Fund.
Other big managers raising big money in 2021 included Blakstone Group’s open-end infrastructure fund, which brought in $6.7 billion in the fourth quarter, said Jon Gray, the manager’s president and chief operating officer, on an earnings call in late January. And Brookfield Asset Management held a $7 billion first close of its energy transition fund in July, on its way to a target of more than double that figure.
And early this year, Apollo Global Management announced a close for its second infrastructure equity fund at more than $2.5 billion.

Various managers are still in the market with large infrastructure funds beyond Brookfield. KKR is targeting $12 billion for its fifth infrastructure fund, while I Squared Capital is aiming for the same amount for its third fund.

The longstanding low-interest-rate environment has been a big driver of money into infrastructure, according to Gordon Bajnai, head of global infrastructure at Campbell Lutyens. “A lot of new money is coming into infrastructure allocations, and most of that new money is going to high single-digit-yielding, downside-protected, long-term core infrastructure,” he said. “That’s because investors are trying
to replace negative-yielding fixed income investments with core infrastructure.”

One of the biggest areas of interest for infrastructure investors last year was the transition to a low-carbon economy – with more deals targeting renewable power, battery storage and other sustainability projects, broadly referred to as “energy transition” investments.

“One of the dominant themes last year was around renewables and clean energy,” said Christian Busken, senior vice president and director of real assets at Fund Evaluation Group. “Anything with that label attached to it was getting a fair amount of attention.”

Such investments grew thanks to a virtuous circle of increased investor demand and a growing opportunity set, said Iftikhar Ahmed, partner at Aon’s investment consulting unit. That’s clear from the success of funds from the likes of Brookfield and Ares, though many infrastructure funds now include an energy transition sleeve as well. “It’s a trend that’s not reversing anytime soon,” he said. “We expect growth in dedicated sustainable/energy transition funds and an increased focus on sustainable/energy transition deals by otherwise diversified funds.”

And Bajnai cites recent studies that forecast hundreds of billions of dollars of climate-related infrastructure investment in the near term.

“That’s a massive increase – more than doubling the speed of deployment in a few years,” he said.
Indeed, Brookfield had planned to close its energy transition fund at $12.5 billion, but later upped the target to $15 billion, CEO Bruce Flatt said at a conference in December. That $15 billion “could have been more,” he added.

It helps that managers can create a wide array of investment strategies from such assets. “Energy transition is a space that is growing so fast that you can easily allocate to different risk/return strategies within the asset class,” Bajnai said. That can range from a low-risk product built around proven technologies targeting a 5% return to something that’s “more technologically risky” with a 20% return target, he pointed out.

Another area seeing attention from both investors and managers is digital infrastructure, such as cell towers and data centers. “We’ve seen various groups raising capital around that theme, and I think
those areas are going to remain on everybody’s radar,” Busken said.

A Campbell Lutyens survey last fall of institutional investors found more than 50% of respondents expressing ongoing interest in energy transition investments, while 50% say they want more digital infrastructure.

Inflation could be another driver of flows into infrastructure investments, which often are seen as a hedge against inflation, “due to the nature of long-term contracts with inflation-linkage and the essentiality of the assets to economic activity,” Park noted. While it’s not entirely clear if infrastructure actually does provide protection from inflation, the belief is there, and as Park put it, “We expect inflationary concerns to continue driving allocations to this asset class.”

And the $1 trillion infrastructure bill that President Biden signed into law last November might also have only a limited impact on the space, some experts believe. Such spending programs tend to come with “long procurement processes,” Ahmed noted.

But that’s unlikely to be a drag on the continued growth of infrastructure investing overall. “We expect the overall fundraising to remain strong in 2022, if not even stronger,” Ahmed said.

Feb 17, 2022

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