2016 saw a record amount of capital raised by closed-end unlisted infrastructure funds with 75 funds reaching a final close, securing $71bn in total capital commitments. A fifth of this capital was raised by the second largest ever infrastructure fund, Brookfield Infrastructure Fund III, which held a final close on $14bn in July 2016. Furthermore, of the total capital raised in 2016, 43% ($30bn) was secured by the five largest funds closed in 2016. However, despite the record fundraising, the number of funds reaching a final close has been on the decline: just 75 funds held a final close in 2016, the lowest count since 2011.
With a consistent increase in capital raised and fewer funds reaching a final close, there appears to be an ongoing trend of capital concentrated among the largest, more established fund managers. This is highlighted in the chart above, showing infrastructure dry powder by fund size over time.
The amount of dry powder held by mega funds has increased by $28bn since 2015 and currently accounts for 49% of total dry powder in the infrastructure market, the highest proportion across the period examined. This coincides with the significant increase seen in the average fund size – funds closed in 2016 raised an average of $1.1bn, compared with just $654mn the previous year. Correspondingly, the share of dry powder held in small funds has fallen since 2015, currently accounting for just 11% of total infrastructure dry powder. This change over the past few years is an indication that investors are deciding to place their capital with the deal-sourcing capabilities of the largest fund managers.
Institutional capital is expected to continue to flow into the asset class in 2017: 88% of investors surveyed for Preqin Investor Outlook: Alternative Assets H1 2017 are expected to commit either the same amount or more capital to the infrastructure asset class in 2017 compared to 2016. With a record number of managers targeting investor capital, along with a couple of mega funds dominating the fundraising market, a significant challenge for fundraising is anticipated for most in 2017. Fund managers will need to be able to communicate effectively how they can find and create value in the current market to successfully secure investor commitments.