State of Play: Brookfield & GIP
Global Infrastructure Partners III, the largest fund ever in the unlisted infrastructure sector, closed at the end of January 2017, marking a highly successful previous half year in terms of fundraising volume, with $64.2bn in investor capital raised. Half of that figure was raised by just two funds: Brookfield Infrastructure Fund III ($14bn) and, of course, Global Infrastructure Partners III ($15.8bn). These two managers have dominated large-scale fundraising in recent years, illustrated by Global Infrastructure Partners (GIP) occupying first and third positions in the league table of the largest ever unlisted infrastructure funds raised, while Brookfield Asset Management (Brookfield) sits in second and fourth positions. For perspective, the largest fund in market, Alinda Capital Partners’ Alinda Infrastructure Fund III, is seeking just $5bn – and the firm occupying the fifth position in the league table is Goldman Sachs’ infrastructure arm, with a fund closed 11 years ago.
Other than sheer size, some broad similarities between the two funds include targeting the same minimum gross and net internal rate of return value (15% and 12% respectively), and anticipating a maximum fund life of 14 years. However, there are some differences: GIP III targets only brownfield deals, expecting to collate a portfolio of 10-14 investments in large government-level assets, inclusive of pipelines, airports and seaports. Brookfield III, however, focuses capital in both greenfield and brownfield assets, engaging anywhere between $400mn and $1bn for any one investment. Investor appetite for GIP III was also impressive, with 191 investors understood to have made commitments to the fund, 94 of which were new to the firm.
Ultra-Large Fundraising and Blackstone Infrastructure
The largest unlisted funds are generally classified as ‘mega’ if they reach a final close above $4.5bn (2005 vintage and younger). Increasingly, the closed-end alternatives market is accommodating funds of greater than $10bn, with the large size of some infrastructure assets and companies particularly well suited to these types of vehicles. Across private equity, real estate, natural resources and infrastructure there are eight of these ultra-funds in market, supported by 41 vehicles that have closed at this level.
Blackstone Group, the manager of the world’s largest closed-end private capital fund (the $20.4bn buyout fund Blackstone Capital Partners V) signalled its potential arrival into the infrastructure space earlier this month, indicating that it would only consider a $20-40bn unlisted infrastructure fundraise as a viable entry in current market conditions. Blackstone has already committed around $6bn of capital to energy infrastructure deals, so the firm has previous credible exposure and experience and has the network necessary to raise ultra-funds, having raised six in the firm’s lifetime. Furthermore, Blackstone’s previous infrastructure spin-out, Stonepeak Infrastructure Partners, has performed 60bpsbetter than the median fund of its class.
Little was disclosed about Blackstone’s preferred strategy; however, there are similarities and differences to GIP and Brookfield’s investment preferences. All three target, or will target, large projects or utilities, an example being GIP III’s €3.5bn investment in Spain’s flagship natural gas utilities company, Gas Natural Fenosa (GNF). Blackstone also discussed its intention to be involved in President Trump’s major infrastructure projects in the US, creating opportunities to deploy large amounts of the fund’s $40bn in capital.