The effects of the global financial crisis in 2009 and the lack of institutional investor activity brought an end to a sustained period of growth within the unlisted infrastructure fund industry. However, as the global economy has recovered, so too has the infrastructure asset class. Fundraising has picked up as investor sentiment has improved, buoyed by compelling investment opportunities in both developed and emerging markets. While the health of the industry has improved, some significant changes, driven primarily by the shifting demands of institutional investors, have also been seen within the infrastructure universe.
Infrastructure fundraising was in decline from its peak in 2007. This culminated in an 80% drop in aggregate capital raised in the midst of the financial crisis between 2008 and 2009, when 17 unlisted infrastructure funds reached a final close raising just $7.4bn in investor capital. Institutional investors were forced to take stock of their portfolios and postpone further fund commitments, which resulted in the most challenging fundraising conditions experienced by infrastructure fund managers to date.
However, fundraising improved significantly in 2010, with 37 funds reaching a final close, raising an aggregate $30.5bn. This represented more than four times the aggregate capital raised in 2009, and just an 18% drop from the 2008 total. Those institutional investors that had previously shied away from making further commitments returned to market and several sizeable funds that had been on the road for over two years were able to reach a final close. Fundraising conditions are expected to remain challenging in 2011, but recent fundraising figures and positive investor sentiment towards the asset class suggest that investor appetite is slowly returning to pre-crisis levels.
The improving attitude towards infrastructure funds over the last 18 months is shown by the increasing number of vehicles reaching or exceeding their initial fundraising targets. 46% of funds that closed in 2010/H1 2011 achieved or exceeded their original targets, 14 percentage points higher than those that did so in 2009. This is in part a feature of the recent growth in fundraising, but is also as a result of fund managers setting more realistic fundraising targets in the wake of the financial crisis. However, the number of funds meeting or exceeding their fundraising goals in 2010/H1 2011 was still significantly less than the 73% and 62% that achieved this in 2007 and 2008 respectively.
Despite the challenging fundraising environment, infrastructure fund managers have continued to launch new vehicles. A record 128 unlisted infrastructure funds are currently on the road seeking an aggregate $91.8bn. This represents 16% more funds than were on the road in January 2010, but an increase of only 2% in terms of aggregate capital sought. This again shows that fund managers are generally lowering their fundraising expectations for new funds, and also suggests that fundraising is set to remain extremely competitive with so many firms seeking commitments for new vehicles.