As global energy markets grapple with high oil prices and Europe tries to break its reliance on Russian hydrocarbons, the private infrastructure asset class is experiencing a fundraising boom. However, it’s not all bright and easy for managers in this space. Below, we look at the challenges GPs face when raising capital for infrastructure funds and provide key solutions to overcome them.
As global energy markets grapple with high oil prices and Europe tries to break its reliance on Russian hydrocarbons, the private infrastructure asset class is experiencing a fundraising boom. However, it’s not all bright and easy for managers in this space. Below, we look at the challenges GPs face when raising capital for infrastructure funds and provide key solutions to overcome them.
Fundraising concentration
Aggregate capital raised over Q2 2022 reveals another stellar quarter of fund closings, at least in terms of size (Fig. 1). If Q1 this year had not delivered a clear record, with just 24 funds closing but raising a combined $72bn (52% higher than the previous record in Q4 2019), Q2 would have taken the title. However, with this quarter seeing $50bn raised by just 15 funds tracked so far, it’s a safe second place in a high-paced market. This concentration of capital is driving average fund sizes for the year to well over $3bn.
Less space for new managers
We’ve seen a longer-term trend of investors looking to build on existing relationships with managers rather than establish new ones. This has implications for new managers’ ability to raise, and, in the longer term, feeds fundraising concentration.
Infrastructure fundraising has become increasingly dominated by fewer, larger funds. As Fig. 3 suggests, typically around half of all capital raised each year is secured by the 10 largest funds closed. Between 2012 and October 2021, the 10 largest infrastructure funds raised an average of 52% of total capital each year.
The solutions
Focus on LPs that are most active in infrastructure
For most fund managers, capital concentration is the biggest challenge. To overcome this, you need to focus your time and resources on reaching out to investors that are actively allocating capital to funds like yours. Building your target list based on the types of investors that are the most active in the asset class can be a good start to narrowing down your target. This can help reduce time spent on the road raising capital – and the quicker you achieve your fundraising target, the quicker you can invest that capital into companies and assets to gain a competitive advantage over your peers.
Preqin tracks over 5,400 LPs active in infrastructure globally on Preqin Pro. See how our detailed profiles from large public institutions to individual family offices, and everything in between, could help you achieve your fundraising targets by requesting a demo today.
Identify LPs with relevant infrastructure mandates
To further narrow down your target list when fundraising, you can also prioritize LPs with mandates to invest in private infrastructure funds like yours.
As of July 2022, Preqin tracks over 340 LP mandates and RFPs for the infrastructure asset class on Preqin Pro, with detailed plans on how they will allocate to the asset class over the next 12 months. See how this data could help you boost your fundraising activity by requesting a demo today.
Analyze LPs’ current vs. target allocations for infrastructure
Finally, focusing your efforts on approaching LPs that are currently below their target allocations for the asset class could increase your chances of success when fundraising. Separating LPs that are over-allocated to the asset class from the ones that are under-allocating against their targets will help you pinpoint the right investors to approach.
Your key to the alternatives market
Preqin Pro gives you access to the industry’s most comprehensive private capital and hedge fund datasets and tools. Find investors searching for investment opportunities like yours. Be the first to know about new investor searches and mandates. Build your pitch with detailed information on investors' past activity and future plans, and drive a successful outreach with details on key personnel and their preferred method of contact.
Preqin also publishes institutional research via Preqin Insights+, providing analysis of investor sentiment through regular investor surveys and exploring the fundraising environment across various markets.