Six Infrastructure Funds Close as Positive Investment Outlook Continues, Study Says

(July 19, 2011) – A Preqin study indicates that investment in infrastructure funds continued to rise in the second quarter of 2011, including six funds that closed on a total of almost $3 billion, Reuters reported. 

The closure of those six funds, which totaled $2.8 billion, continues a positive trend for infrastructure fund closures. According to the Preqin report, six funds also closed in the first quarter for a total of $2.7 billion, and 10 funds closed in the final quarter of 2010 for a combined $2.5 billion.

There are 128 unlisted infrastructure funds currently fundraising, according to Preqin. They are seeking to raise a combined $92.1 billion, a figure that is up 7% from the start of this year.

Along with the funds that closed during the quarter, another 15 funds reached an interim close, having raised a total of $8.2 billion. These interim closes were among the reasons for confidence in spite of the small number of funds closing during the second quarter: “Despite another slow quarter in terms of the number of funds reaching a final close, our data hints at further improvements in investor and fund manager activity, so we do expect fundraising and deal flow to pick up throughout the second half of 2011,” Preqin analyst Elliot Bradbrook told Reuters.

A column from aiCIO magazine’s summer issue entitled “The Infrastructure Play – With a Twist”  outlines why investors are attracted to infrastructure: “Infrastructure assets are long-life, technologically secure physical assets that provide essential public services. They hold a monopolistic or quasi-monopolistic position and, correlatively, consumer demand for the service or good is relatively inelastic.” The column points to the Ontario Teacher’s Pension Plan, which is a strong investor in infrastructure because, according to the Plan, such funds possess “long economic life and offer low-risk, reliable returns linked to inflation in order to help pay pensions for decades.”

An aiCIO   report from April highlighted a Deloitte study on the increasing interest in infrastructure funds by European pension funds. In the Deloitte report, James Riddell, an infrastructure funds partner at the firm, said, “The infrastructure funds market has developed to be less reliant on highly leveraged structures for its returns. Rather the market has almost uniformly as a sector shifted focus back to core infrastructure assets that can deliver the stable secure long term cash flows desired by their traditional pension fund investors.”

Most infrastructure funds are focusing increasingly on roads, airports, ports, railways, gas, and water assets. The largest fund currently fundraising is Global Infrastructure Partners II, which is targeting upwards of $5 billion. The largest fund that closed at the end of the quarter was the $1.2 billion First Reserve Energy Infrastructure Fund.

By Justin Mundt