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Infrastructure funds make bold bet as investor demand runs on

Two asset managers are vying to raise $20bn each for what will be the world’s biggest unlisted infrastructure funds, as institutional investors plough ever larger sums of capital into assets that form the backbone of the global economy. Toronto-based Brookfield Asset Management, which manages $285bn of assets, plans to fundraise for a mammoth $20bn vehicle in the coming months after exhausting all the cash from its $14bn Brookfield Infrastructure III fund, raised in 2016. New York-based Global Infrastructure Partners, meanwhile, which concluded fundraising for a record-setting $15.8bn fund only last year, is further ahead and is expected to complete its $20bn fundraising in early 2019. Two people briefed on the situation said initial commitments for Brookfield’s latest fund already suggests it will reach its $20bn target. A third person said GIP, majority owner of Gatwick airport, was also on track to raise $20bn. Both companies declined to comment. Jonathan White, UK head of infrastructure at KPMG, said the sector was being driven by the de-carbonisation of the energy sector and creation of renewable energy facilities; the need to refresh existing infrastructure such as roads, ports and pipelines; and urbanisation in developing nations from Brazil to China. “Infrastructure has been an investment success story in the last 10 years. It has produced attractive returns when compared to bonds and equities when measured on a risk-adjusted basis,” he said. The infrastructure sector reached a record $450bn of assets under management at the end of 2017, according to Preqin. However, the data firm added that deal volumes had declined this year because of high pricing in the sector. Brookfield, which can also make infrastructure investments directly via its $15.4bn listed vehicle, continues to pursue large-scale assets such as the $2bn East West gas pipeline in India. It is nearing a deal to buy the 1,400-km pipeline from a company controlled by the billionaire Mukesh Ambani. KKR, the New York-based private equity group, closed a $7.4bn infrastructure fund this month, while Blackstone, the world’s largest real estate investor, raised $5bn for an infrastructure fund earlier this year. Recommended FTfm Bruce Flatt of Brookfield on owning the backbone of the global economy Blackstone has a $40bn long-term goal for the fund, its first dedicated to the sector, with Saudi Arabia’s Public Investment Fund matching every dollar raised for the vehicle. Investors have poured into the fast-growing infrastructure asset class, which promises long-term income streams with higher yields than bonds. Brookfield’s 10-year record in infrastructure is helping to lure investors, said one of the people briefed on its plans. Typically two-thirds of existing investors “roll over” into new products, while about 35 per cent are new, the person added. The asset manager plans a first close of the new fund in the first quarter of 2019, which will enable it to begin making investments. The fund will target net internal rates of return – a measure of profitability – of 10 to 12 per cent. Investors in the previous Brookfield fund include the Oregon Investment Council, New York State Common Retirement Fund and Texas Teacher Retirement System, along with sovereign wealth funds, endowments and financial institutions.

Peter Smith and Judith Evans for the Financial Times, Sept. 23, 2018

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