Infrastructure fund managers have found it increasingly difficult to raise capital following the global financial crisis, with institutional investors becoming more cautious when committing capital to unlisted infrastructure funds than in the past. Fund managers therefore have to address a number of factors in order to be successful in the current fundraising market, including their fee and fund structures and their level of team experience. Another key factor which could lead to fundraising success can be the utilization of a placement agent in sourcing investor capital. This blog examines the impact a placement agent can have when raising an infrastructure fund.
The current infrastructure fundraising market is made up of 146 vehicles targeting an aggregate $93.7bn. Of these funds, 47% have held at least one interim close raising an aggregate of $19.1bn in investor capital. Forty-eight percent of these funds on the road employ the services of a placement agent, with the remaining 52% raising capital in-house. Interestingly, 70% of vehicles working alongside a placement agent have already reached an interim close, compared to 45% of those funds advised in-house. This shows that funds working alongside a placement agent are more likely to hold an interim close in the current market than those that are not.
In 2010/2011, 73 unlisted infrastructure funds closed reached a final close raising an aggregate $48.2bn. Of these vehicles, 63% employed the services of a placement agent during the fundraising process, raising an aggregate $29.1bn (60% of the total capital raised). This again suggests the added advantage of using a placement agent in the present market environment. A further 32 vehicles failed to secure capital and were abandoned in 2010/2011, of which 10 funds disclosed whether a placement agent was used or not. Only two of these 10 failed vehicles were working with a placement agent, while eight were being raised in-house.
Therefore, history suggests that by utilising the services of a placement agent, fund managers can increase the likelihood of holding both interim and final closes and reduce the chance of having to abandon their funds. Going forward, it is likely that more GPs will consider using a placement agent as a means of gaining an advantage over their competitors in this highly congested fundraising climate.