In the wake of the global financial crisis, several factors have become increasingly significant in determining the level of capital raised by unlisted infrastructure fund managers– with manager experience a key feature. Preqin’s data on investor preferences towards first-time infrastructure fund managers shows that 29% of investors would not invest with a GP seeking capital for a maiden fund. A further 11% of institutions would consider investing with a first-time fund manager, while 6% would invest if the fund was being raised by a spin-off team. Therefore just 54% of investors would be willing to invest in a first-time infrastructure fund, showing that a growing number of institutional investors are holding a preference for those GPs that can demonstrate a history of success in the infrastructure asset class.
In terms of historical fundraising figures, first-time fund managers were responsible for 42% of the funds that closed in 2010/2011, with a further 37% of vehicles being raised by firms marketing their second, third or fourth fund. Highly experienced GPs, as defined by those that have closed five or more vehicles, raised the remaining 21% of funds. This highlights the infancy of the infrastructure industry when compared to other alternative asset classes. In terms of aggregate capital raised, first-time funds typically secured far less than vehicles raised by GPs with prior experience. Again when looking at funds closed in 2010/2011, the average close size for a first-time GP, $420mn, was half the amount of the average raised by GPs with prior experience, $840mn. In addition to the 73 unlisted infrastructure funds that were successfully raised in 2010/2011, a further 32 vehicles failed to secure capital and were abandoned. First-time fund managers were overwhelmingly responsible for these failed vehicles, accounting for 75% of the total.
The current infrastructure fundraising market is made up of 146 vehicles targeting an aggregate $93.7bn. First-time fund managers are raising 52% of funds on the road, while 21%, 12% and 5% are in the process of raising their second, third and fourth offerings respectively. Highly experienced infrastructure fund managers, as defined earlier, are raising the remaining 11% of vehicles. In terms of capital sought by fund managers, vehicles raised by first-time firms are targeting an average $459mn whereas those raised by firms marketing at least a second vehicle are targeting an average $877mn. A total of 68 funds on the road have reached an interim close, split evenly between first-time funds (34) and those raised by GPs with a prior offering (34). Those funds launched by GPs with a track record in the asset class have accumulated 73% of the $19.1 billion raised, in contrast to the 27% ($5.2 billion) secured by new GPs.
Therefore, when it comes to fundraising success, those GPs that can demonstrate a track record in the infrastructure space will be able to close a higher number of funds for greater average levels of capital, both at whole fund and interim levels, and will be far less likely to be responsible for a vehicle that is abandoned. For first-time GPs, an ability to demonstrate an established pipeline of assets and a tightly defined investment strategy will be one method of standing out amongst peers. In addition, those first-time GPs with seed/anchor investments will benefit along with vehicles that can provide early, and regular, cash distributions.