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First-Time Funds Present Investment Opportunities for Infrastructure Investors

by Matthew Bacco

  • 06 Dec 2016
  • INF

Competition in accessing top fund managers could push institutional investors towards initiating more relationships with first-time managers. In Preqin Special Report: Making the Case for First-Time Funds, 54% of the 400 institutional investors surveyed in June 2016 stated that they found it more difficult to find attractive investment opportunities in the infrastructure industry than they did 12 months ago. Thirty-six percent of the $44.7bn capital raised by infrastructure funds was secured by first-time funds, indicating that the majority of capital is still allocated to established managers. Gaining access to these established managers is particularly difficult due to the relative youth of the asset class; new entrants may not have developed as many relationships as some other larger, more experienced institutions that can write larger ticket sizes.

Investing with first-time funds offers investors the opportunity to form strong and mutually beneficial partnerships with GPs over the long term. These relationships often give investors a number of advantages and privileges, including the ability to commit to follow-up funds before others, seats on LP advisory boards and committees, increased co-investment opportunities and sometimes more attractive and flexible fund terms and conditions. This relationship could be key for infrastructure investors because 87% of the infrastructure investors we interviewed have previously decided not to invest in a fund due to the proposed terms and conditions (Preqin Investor Outlook: Alternative Assets H2 2016).

Of those investors surveyed, a much larger proportion are looking to increase their allocation to infrastructure in the long term than are looking to reduce their allocation (50% vs. 8% respectively). While there is intense competition for institutional capital among fund managers, investors are searching for the managers with long track records and a history of strong past performance. With the top end of this market saturated with some of the largest institutional investors in the asset class, there could be significant opportunities for first-time funds to win institutional capital in the coming year.

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