Infrastructure Institutional 2019 Survey Results

[Pages:32]Infrastructure Institutional

Investor Trends: 2019 Survey Results

Infrastructure Institutional Investor Trends: 2019 Survey Results

? 2019 Probitas Partners

Contents

Infrastructure Landscape........................................................................... 2 Ten Largest Infrastructure Funds ............................................................ 4 Infrastructure Institutional Investor Survey....................................... 5

Highlights of Survey Findings.............................................................. 5 Profile of Respondents........................................................................... 6 Plans for Infrastructure Investing.................................................... 9 Sectors, Industries, and Geographies of Interest.......................... 12 Targeted Returns and Fees................................................................... 16 Portfolio Benchmarks.......................................................................... 20 Investment Structures.......................................................................... 21 Terms and Conditions........................................................................... 23 Reasons for Not Investing................................................................... 25 Infrastructure Investment Concerns............................................... 26 Key Trends ..................................................................................................... 28 Conclusion .................................................................................................... 29

probity ? ? n. [from Latin probitas: good, proper, honest.] adherence

to the highest principles, ideals and character.

? 2019 Probitas Partners

On an ongoing basis, Probitas Partners offers research and investment tools for the alternative investment market to aid its institutional investor and general partner clients. Probitas Partners compiles data from various trade and other sources, then vets and enhances that data via its team's broad knowledge of the market.

Infrastructure Institutional Investor Trends: 2019 Survey Results

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Infrastructure Landscape

Closed-end infrastructure funds as a significant sub-sector of alternative investing are a recent phenomenon, only reaching an annual total of over $5 billion in 2004. Since then, it has grown rapidly -- save a pause during the Great Financial Crisis ("GFC") -- with annual fundraising more than doubling in a decade, hitting an all-time peak in 2018 (Chart I).

Total infrastructure fundraising numbers in the chart are understated, as they do not include capital raised for open-end funds, co-investments, or direct investments coming from larger investors, all of which are more difficult to track.

As of mid-year 2019, closed-end fundraising remains strong but is slightly behind 2018's pace. However, GIP and Brookfield are in the market with huge funds likely to have final closes before year-end.

Infrastructure debt funds have been a more important part of the market over the last decade as project financing from banks has come under pressure. However, debt fundraising over the last eighteen months has been weak after 2017's peak fundraising year for debt.

Closed-end infrastructure funds have been dominated by Global funds (which are usually heavily focused on developed markets) and funds targeting North America and Europe (Chart II). During any particular year fundraising for vehicles targeting North America or Europe can vary tremendously, but those annual variations are more technically driven by the closing dates of certain very large funds. On the whole, funds targeting developed markets move from strength to strength.

Conversely, there has been relatively light interest in funds targeting emerging markets.

Chart I Closed-End Infrastructure Fundraising, USD in Billions

USD in billions

100

91 90

80 73

70

64

61

60

50

47

49

45

41

42

40

40

29 30

20 12

10

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

IH 2019

Equity Focused Funds

Debt Focused Funds

Source: Infrastructure Investor

Infrastructure Institutional Investor Trends: 2019 Survey Results

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? 2019 Probitas Partners

Chart II Closed-End Infrastructure Fundraising by Geography

USD in billions

100

90

80

70

60

50 41

40

30

73

62

64

47

49

42

40

29

20 12

10

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: Infrastructure Investor

Global

North America

Europe

Asia-Pacific

ROW

91 45

2018

IH 2019

? 2019 Probitas Partners

Infrastructure Institutional Investor Trends: 2019 Survey Results

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Ten Largest Infrastructure Funds

Table I details the ten largest closed-end infrastructure funds with final closes raised to date. Both Brookfield or GIP have each raised two of these funds, and both of these managers are currently in the market with funds likely to be at the top of this list next year.

The funds on this list are all diversified by industry sector and are mainly focused on projects in developed markets.

Seven of the funds are denominated in U.S. dollars, while three others are denominated in Euros, and six of these funds had final closes in 2018 or 2019.

Table I Ten Largest Closed-End Infrastructure Funds, July 2019

Rank Fund Name

Firm Name

1 Global Infrastructure Partners III 2 Brookfield Infrastructure Fund III 3 EQT Infrastructure Fund IV

Global Infrastructure Partners Brookfield Asset Management EQT Partners

4 Global Infrastructure Partners II 5 KKR Global Infrastructure Investors III 6 Stonepeak Infrastructure Partners III

Global Infrastructure Partners KKR Stonepeak Infrastructure Partners

7 Ardian Infrastructure Fund V 8 ISQ Global Infrastructure Fund II 8 Brookfield Infrastructure Fund II

Ardian I Squared Capital Brookfield Asset Management

10 Macquarie European Infrastructure Fund 6 Macquarie Infrastructure and Real Assets

Location New York Toronto Stockholm New York New York New York

Paris New York Toronto Sydney; London

Year 2016 2016 2019 2013 2018 2018 2019 2018 2013 2019

Amount (MM) USD 15,800 USD 14,000 EUR 9,000 USD 8,250 USD 7,400 USD 7,200 EUR 6,100 USD 7,000 USD 7,000 EUR 6,000

Source: Probitas Partners

"[These funds] are all diversified by industry sector and are mainly focused on projects in developed markets."

Infrastructure Institutional Investor Trends: 2019 Survey Results

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? 2019 Probitas Partners

Infrastructure Institutional Investor Survey

Probitas Partners performs an annual survey of institutional investors globally to determine how their perspectives on the closed-end infrastructure investment market have developed.

Highlights of Survey Findings

Investors' greatest fears -- too much money coming into the market impacting future returns, while the market feels "toppy." Investors are frequently concerned that too much money is entering a market sector, but this year an extremely high 74% felt that way about infrastructure. Fears that we are at or nearing the top of a market cycle have also been a major concern over the last three surveys. These two fears are by far the largest concern of investors, the only two cited by more than 50% of respondents.

Despite investors' largest fears, their appetite for infrastructure remains strong. Fundraising for infrastructure hit an all-time high in 2018, and 96% of respondents said that they will either maintain or increase their investment pace over the next year.

Returns on core projects are still under pressure due to direct investor demand. In response, fund investors continue to shift toward value-added funds. Even as returns on core projects continue to compress, large investors continue to pursue them directly, though they are beginning to be concerned that the risk/return trade off is becoming unbalanced.

Investors are still most interested in projects in the developed markets. Emerging market interest remains weak and fundraising for emerging markets remains weak as well.

Limited partners have little interest in infrastructure "light" projects or funds. There has been an increased interest among fund managers in infrastructure "light" projects or company investments that are related to infrastructure but do not have the same type of downside protections that core investments, in particular, would have. Though returns on infrastructure "light" are higher, so are the risks, and many limited partners consider these to be private equity investments.

? 2019 Probitas Partners

Infrastructure Institutional Investor Trends: 2019 Survey Results

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Profile of Respondents

A significant number of insurance companies, public pension plans, consultants, fund-of-fund managers, and asset managers responded to the survey (Chart III).

60% of respondents were headquartered in North America, with 22% from Europe and 16% from Asia (Chart IV).

56% of respondents are active investors in the sector with five years or more of experience, a significant increase from the 41% in that category last year (Chart V), while 23% of the responses were from consultants with clients at various stages.

Chart III Respondents Categorized by Investor Type I represent a/an:

24%

2%

2%

21%

6%

13% 17%

15%

Source: Probitas Partners' Infrastructure Institutional Investor Trends: 2019 Survey Results

Insurance Company Public Pension/Superannuation Plan Consultant/Advisor Fund-of-Funds Manager Asset Manager Corporate Pension/Superannuation Plan Endowment or Foundation Sovereign Wealth Fund

Infrastructure Institutional Investor Trends: 2019 Survey Results

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? 2019 Probitas Partners

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