Most listed GPs delivered double-digit gains in 2023
Climate and energy transition driving investment
Increased allocations not ‘a shift out of other parts of alternatives’ – KKR
February 23, 2024 (Preqin News) – Listed alternative asset managers showed sustained interest in infrastructure during their fourth-quarter 2023 results presentations, providing positive fundraising figures as investors increase allocations to the asset class.
‘For the most part, we’ve seen people creating allocation to infrastructure over the last several years. It hasn’t really been a shift out of other parts of alternatives, to some extent, where we’ve seen alternative allocations increase,’ Scott Nuttall, Co-Chief Executive Officer (CEO) of KKR, said during the earnings call.
Fourth-quarter infrastructure fundraising in 2023 was the second-best quarter on record, boosted by Brookfield Asset Management’s $28bn fifth fund. However, the overall capital raised was weak, with the $78bn raised across the whole year just 64% of the annual average from 2017–2022, according to the Infrastructure Q4 2023: Preqin Quarterly Update.
Despite the weak environment, many investors remain convinced of the long-term attractiveness of the sector, as evidenced by Blackrock’s $12.5bn acquisition of Global Infrastructure Partners in January. This deal made Blackrock the third-largest infrastructure fund manager, with assets under management (AUM) of $150bn, behind Macquarie Asset Management ($200bn infrastructure AUM) and Brookfield Asset Management ($180bn infrastructure AUM).
‘We identified that decarbonization, deglobalization, and digitalization were megatrends that were shaping the global economy. Governments, corporates, and other stakeholders have made commitments to net-zero targets and are grappling with energy security, supply chain resiliency, and meeting the exponentially growing demand for data. These challenges will require trillions of capital investment and our infrastructure renewable power and energy transition businesses are well positioned to deliver solutions,’ Bruce Flatt, CEO of Brookfield, said during the earnings call.
Most of the world’s largest listed GPs reported gross returns in the low teens, with KKR topping the table with an 18% gross return in 2023. All the listed GPs below beat out the S&P Global Infrastructure Index, which provided a three-year return of 4.2%.
Here are some of the highlights from the earnings calls:
Brookfield
Brookfield Asset Management did not provide return figures for 2023, though it reported gross IRRs of 16% from Infrastructure and 13% from Renewable Power & Transition. Its 2019-vintage flagship fourth infrastructure fund is showing a 19% gross return (14% net).
The infrastructure business deployed $19.4bn in 2023, including the $1.2bn it invested in the Compass Datacenters deal, alongside Ontario Teachers’ Pension Plan.
Brookfield’s infrastructure AUM was reported at $191bn, advanced by $13.3bn in fundraising in 2023.
Uncalled commitments for the firm’s infrastructure and renewable energy arm sit at $31bn.
Brookfield has four open infrastructure vehicles, with the Global Transition Fund II targeting $20bn, according to Preqin data.
‘Infrastructure, renewable power, and energy transition are expected to be among the fastest-growing alternative asset sectors for good reason. Investors continue to allocate to the space because these are assets that can deliver four things all investors see. Market growth, principal safety in uncertain times, inflation-protected cash flows, and long-term capital appreciation,’ CEO Bruce Flatt said during the earnings call.
KKR
KKR’s infrastructure operations reported an 18% gross return for 2023.
The firm’s infrastructure AUM stood at $60bn, boosted by $16bn of organic capital raised in 2023.
KKR has one open infrastructure investment vehicle and plans to launch two further funds in 2024, according to Preqin Pro. The firm announced the close of the Asia Pacific Infrastructure Investors II fund last month at $6.4bn, making it the second-largest Asia-focused infrastructure fund ever raised.
‘Our infrastructure strategy is a front-burner topic for us, as it relates to fundraising. We’re also fundraising for a climate strategy. And we also have the wealth products that we launched midway through last year, which we expect to continue to build in scale,’ Craig Larson, Head of Investor Relations at KKR, said during the earnings call.
Blackstone
Blackstone reported a 12.1% gross return for their infrastructure business in 2023, with an appreciation of 1% in the fourth quarter.
The firm’s infrastructure deployments far outweighed realizations in 2023 ($5.3bn vs. $0.9bn), in contrast to its corporate private equity funds.
Infrastructure AUM was reported at $41bn, with $3.3bn capital raised over the year.
Blackstone currently has one infrastructure fund in market that will invest in energy and natural resources, according to Preqin data. Blackstone Energy Transition Partners IV had raised $3.3bn at a second close in September 2023 and has a $6bn target. The firm is also seeking to raise an open-ended European infrastructure fund in the coming year.
‘Our infrastructure business appreciated 33% over the past two years, compared to only a 7% return for the S&P Infrastructure Index. That’s an outperformance of 26%. This is one of the reasons we’ve been able to build this platform from zero six years ago to over $40bn today,’ CEO Stephen Schwarzman said on the earnings call.
Carlyle
Carlyle’s Infrastructure and Natural Resources returns were flat in the fourth quarter, with gross appreciation for the year of 8%.
Realizations exceeded deployments for the year in infrastructure ($5.8bn vs. $1.1bn).
The firm reported an infrastructure AUM of $25bn, with $2.6bn raised in 2023.
Carlyle is currently raising two infrastructure funds, as well as an open-ended diversified infrastructure fund.
‘Infrastructure and natural resources were flat as positive performance in infrastructure and renewables was offset by funds with oil and gas exposure,’ Carlyle said in the earnings presentation.
Apollo Global Management
Apollo did not provide infrastructure return figures, instead reporting returns along its Yield, Hybrid, and Equity strategies. The firm’s 2021-vintage Infrastructure Opportunities Fund II is showing a 12% net return, according to Preqin data.
The firm reported an AUM figure across their real asset portfolio of $83.8bn at the end of 2023.
Apollo is aiming to invest $50bn via its Sustainable Investing Platform over the next four years (by 2027).
Apollo has three infrastructure vehicles currently in market, having closed their Clean Transition Capital fund in Q4 last year.
‘Apollo Infrastructure Company launched in November to capture growing demand for private infrastructure assets. We believe the company offers differentiated access to the full spectrum of our infra platform, investing across sectors and the capital structure,’ Co-President Scott Martin Kleinman said on the earnings call.
Ares Management
Ares Management reported a 7.6% gross return for its Infrastructure Debt portfolio, not providing figures for the Infrastructure Opportunities or Infrastructure Secondaries sub-asset classes.
The firm’s new capital commitments for the year across infrastructure opportunities ($1.2bn), debt ($0.4bn), and secondaries ($0.7bn) came to $2.3bn, with $3.2bn deployed.
Infrastructure AUM dropped by 1% from 2022 to $18.1bn.
According to Preqin data, Ares has three infrastructure funds currently in market, including two secondary funds, and Ares Climate Infrastructure Partners II, which is seeking to raise $3bn.
‘Within real assets, our infrastructure strategies performed in line with expectations, delivering a high single-digit return in volatile markets,’ Jarrod Phillips, CFO, said during the earnings call.
TPG
TPG is one of the only large, listed GPs without an infrastructure business in 2023, but is planning to launch its first climate transition infrastructure fund this year.
Scott Lebovitz will be Head of Infrastructure for TPG Rise Climate, having joined the firm from Goldman Sachs, where he served as Global Co-Head of Infrastructure Investment Group.
‘In the Infrastructure world, I think you continue to see a fair amount of interest in decarbonization and our position essentially expanding from Private Equity into the Infrastructure adjacency offers is a significant opportunity for us. So this is a period of time that investors are looking for sector differentiation, and I think we’re in a good position to continue to offer it in Rise Climate,’ Jim Coulter, Co-CEO and Founding Partner of TPG, said during the earnings call.
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