As we move into the final month of 2012, we ask what can infrastructure fund managers realistically expect to achieve in the coming year, and what are the prospects for successfully raising a fund in 2013?
Since June 2011, 47 unlisted infrastructure funds have reached a final close raising an aggregate $32.8bn. Thirty-six percent of these funds took between 13 and 18 months to complete the fundraising process, while 24% spent between 19 and 24 months on the road. A considerable 22% of funds took over two years to reach a final close, including 16% that took over 31 months. Just 18% of funds managed to reach a final close within a year.
The average unlisted infrastructure fund to reach a final close between January and November 2012 spent 24 months on the fundraising trail; this represents a slight increase from both 2011 and 2010 where the average time spent on the road in each year was 20 months. Going forward, this timeframe is unlikely to reduce significantly as institutional investors continue to operate conservative investment strategies and take more time to finalize fund commitments. Infrastructure fund managers currently raising a vehicle can therefore realistically expect to spend anywhere upwards of 24 months raising capital. When applied to the current fundraising market, 29 of the 142 funds on the road have already spent 24 months actively raising capital and could potentially hold final closes in the coming 12 months. These vehicles are seeking an aggregate $23.7bn in investor capital.
Fund managers are generally lowering their fundraising targets in the current environment and going forward this looks set to continue. The average unlisted infrastructure fund currently on the road is targeting $617mn, and only 35 vehicles (25% of all funds) are seeking to raise upwards of $1bn in total capital. Just eight “mega” funds – those looking to raise over $2bn – are currently in market targeting an aggregate $18.1bn. Based on this trend, infrastructure GPs should expect to raise less aggregate capital per fund in the coming 12-18 months than in the past.
In 2007, a significant 73% of unlisted infrastructure funds either met or exceeded their fundraising targets, a figure which has now fallen considerably. The proportion of funds meeting or exceeding their pre-determined fundraising goals sunk to 41% in 2010, 52% in 2011 and 41% between January and November 2012; this figure is likely to remain subdued in 2013. The average fund to close between January and November 2012 achieved just 88% of its initial fundraising target, and if this trend continues as expected, the $86.9bn being sought by the 142 infrastructure funds currently on the road is likely to be significantly reduced once (and if) these vehicles reach a final close.
Infrastructure fund managers can therefore expect another tough 12 months in search for investor commitments despite increasing LP appetite for unlisted infrastructure funds and growing demand for private sector investment in the asset class. Many first-time fund managers will struggle to raise capital in such a crowded marketplace and even experienced firms will need to adapt to survive the impending log jam of funds on the road. Those fund managers willing to listen to LP demands, make concessions, and present a clear and defined investment proposal will stand out going forward and have the best chance of success in 2013.