Debt is becoming a more significant part of the unlisted infrastructure fund industry following strong fundraising activity in recent years, according to Preqin.
2012 marked the highest level of aggregate capital raised, as 21 funds secured USD12 billion in investor commitments, but the 14 funds closed in 2015 approached that level, raising a combined USD11.6 billion.
Additionally, there are currently a record 43 infrastructure debt funds in market, seeking a combined USD25 billion in investor commitments. Of these, 21 have already held an interim close and secured USD15 billion of their targets, further indicating the growing investor appetite for infrastructure debt.
However, the sector does remain a relatively recent development in the infrastructure fund industry, and newcomers constitute the largest part of the fundraising market.
Nearly three-quarters (74 per cent) of unlisted infrastructure debt vehicles are managed by firms with no prior vehicles in the sector, while a further 17 per cent of firms have raised only one or two debt funds previously.
Due to the lack of established track records, managers will often seek to raise smaller funds; correspondingly, two-thirds (67 per cent) of infrastructure debt firms have secured less than USD500 million for unlisted funds over the last 10 years. However, just as in the wider infrastructure industry, there are still large managers in the debt space: a fifth have secured USD1 billion or more in institutional capital commitments over the past decade.
North America-focused infrastructure debt funds have raised the most capital since 2009 (USD14 billion), while Asia has seen the greatest number of funds (37) reach a final close, securing a combined USD11 billion in investor commitments.
The average size of infrastructure debt funds has grown over time. Funds closed in 2015 raised a record USD826 million on average, while funds closed in 2016 YTD are an average USD729 million. Moreover, five of the largest 10 infrastructure debt funds ever to close did so either in 2015 or 2016 YTD.
Typically, larger institutional investors make up the majority of the infrastructure debt investor universe. Over half of investors (56 per cent) hold USD10 billion or more in assets under management (AUM), while a significant 18 per cent hold USD100 billion or more in assets; only 13 per cent of investors hold less than USD1 billion in AUM.
Over a third of investors (34 per cent) with a preference for infrastructure debt are based in Asia, the highest proportion of any region, indicating potential for growth in the Asian market. Twenty-four per cent of infrastructure debt investors are located in Europe and North America.
“Infrastructure debt is becoming an increasingly prominent component of the infrastructure industry. Regulation has affected the levels of capital traditional lenders have been able to allocate, and this has created a significant niche for unlisted managers to provide debt financing for infrastructure projects,” says Tom Carr, head of real assets products at Preqin. “The emergence of the strategy is apparent in the record number of funds coming to market, which are targeting increasing amounts of investor capital.
“However, although it has seen growth in recent years, this part of the infrastructure asset class remains fairly new, and as a result it has a high concentration of first-time and emerging fund managers. This may help to explain why infrastructure debt funds tend to be smaller than in the asset class as a whole, as managers seek to establish themselves with a positive performance track record before targeting larger levels of capital commitment from investors. This puts those managers with an established track record at something of an advantage, and means that first-time managers are likely to have to work hard to attract investor inflows.”
