The number of deals completed by unlisted infrastructure fund managers grew steadily between 2003 and 2008 which mirrors the growth in fundraising experienced during the same period. In terms of the number of deals completed, 1,451 separate investments have been made by infrastructure fund managers since 2003. According to Preqin data, deal flow peaked in 2008 with 248 transactions completed during the year.
However, the growth in annual deal flow halted in 2009 when the number of investments completed by unlisted infrastructure fund managers fell to 238. Although slight, this was the first drop in annual deal volume since 2002 and was indicative of the difficult conditions faced by fund managers during the financial crisis. Investor confidence returned in 2010, although infrastructure deal flow remained constrained with 232 deals made during the year, a drop of 6.5% from 2008.
The decline in the number of deals executed in 2009 and 2010 can be attributed to a number of factors. At an industry level, fund managers were restricted by the lack of long-term debt available from traditional sources and sellers’ high asset valuations. These issues appear to have carried over into 2011, with just 76 deals completed by unlisted infrastructure fund managers in H1. Although the total number of deals completed in H1 2011 is expected to rise as further information becomes available, the general drop in deal activity illustrates the tough conditions facing fund managers in the current market.
In terms of region, Europe remains the most prominent with 572 of the 1,205 infrastructure deals completed since 2006 involving European assets, representing 47% of the global total. The number of deals completed in Europe grew steadily from 63 in 2006 to 140 in 2009 as fund managers took advantage of the growing need for private investment in infrastructure projects in the region. However this growth halted in 2010 when 125 investments were made in European assets, a drop of 11% from the previous year.
North America and Asia and Rest of World saw 295 and 338 deals finalized respectively during the same period. The annual number of deals completed in North America grew between 2006 and 2007, but has since declined. Consequently, there were more deals completed in assets located in Asia and Rest of World between 2008 and 2010, than in assets located in North America. This suggests that a growing number of fund managers are beginning to look outside of developed markets for investment opportunities, although relatively few fund managers are willing to venture into the greenfield-orientated emerging economies in the current environment.