Amid Fundraising Uptick, Infrastructure Deal Volume Remains Low

(July 22, 2010) — New research by Preqin shows infrastructure managers raised an impressive $6.7 billion from global investors in the second quarter, representing the fourth consecutive quarter-on-quarter increase, yet deal flow remains low.

As fundraising difficulties persist with investors wary amid continued market uncertainty, fund managers have lowered their targets. While the total raised represents the highest level of fundraising since 2008, overall deal flow is still at its lowest level since 2006 — unlisted infrastructure managers reported completing 23 deals, down from 71 deals just two quarters ago. Meanwhile, the fundraising market has become increasingly competitive, with a record 105 funds in the process of seeking capital, Preqin’s research showed.

“Fund managers are reducing fundraising targets as new funds are typically seeking less capital due to continued investor caution and difficult fundraising conditions,” Preqin said. “This shows that despite recent positive growth in fundraising, the ongoing contraction of credit markets continues to restrict deal flow.”

The research revealed that the total raised during the quarter came from six unlisted infrastructure funds: Goldman Sachs raked in $3.1 billon for its GS Infrastructure Partners II fund; the Macquarie Infrastructure Partners II fund raised $1.6 billion, the EnCap Energy Infrastructure fund raised $792 million, the DIF Infrastructure II fund raised €500 million ($640.6 million), the Zachry Hastings Infrastructure Partners, L.P. raised $330 million and the Challenger Mitsui Emerging Markets Infrastructure Fund raised $273 million. In terms of geographic region, Europe was the most active area with 10 deals completed, followed by North America with seven, Asia with three; South America with two and Australia with one.

In related news, Leo de Bever, the CEO of Canada’s Alberta Investment Management Corporation (AIMco) often regarded as the king of infrastructure investment, once championed the asset class as a prized source of investment yet he  has since changed his mindset. “The time to be in infrastructure is not now,” De Bever told CTV News in Canada. “It’s too expensive, everyone’s in it. Whenever everyone’s in it, you want to back off.”