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Infrastructure fundraising to remain weak despite institutional interest

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  • Infrastructure fundraising to remain weak despite institutional interest

GLOBAL - The infrastructure fundraising market is set to remain weak despite growing institutional interest in the asset class, according to Preqin.

A recent Preqin study found that while the infrastructure fundraising market recorded the bulk of its 2011 activity in the last quarter of the year - with seven funds closed totalling $8bn (€6bn) - the industry failed to reach the level recorded in 2010.

Overall, 38 infrastructure funds closed during 2011, raising $16bn, compared with the $31.8bn raised in 2010 by 41 funds. 

Elliot Bradbrook, manager of infrastructure data, said: "The private infrastructure market enjoyed a consistent year in 2011, both in terms of fundraising and deal flow.

"Although fundraising did not reach the levels seen in 2010, the majority of capital raised in 2011 was fresh capital (not secured prior to the downturn), showing that institutional investors are still looking to make new commitments to unlisted infrastructure funds."

Preqin also pointed out that a further $13.1bn was raised by funds holding interim closes in 2011, which shows good momentum within the current market.

However, the infrastructure fundraising market is set to remain tough in the coming months due to pressing issues on the debt side.

Infrastructure projects have struggled to find debt financing in recent years, with banks turning their nose up at project finance loans to refocus on core activities.

Nonetheless, Bradbrook said: "The total number of deals completed by unlisted infrastructure fund managers in 2011 is likely to surpass the number of deals completed in 2010 once more information filters through from fund managers.

"This shows that infrastructure deal flow continues to steadily improve despite ongoing issues with regard to the availability of affordable long-term debt financing."

He also stressed that only infrastructure fund managers offering the most attractive opportunities would be successful in 2012.

In October, the EU unveiled plans to invest €50bn in modernising digital, energy and transport networks over the next few years, envisaging the use of bonds backed by the European Investment Bank to fill funding gaps left by cash-strapped governments.

And the UK Treasury announced in late November it had signed a Memorandum of Understanding with several institutional investors, including the Greater Manchester Pension Fund and the London Pensions Fund Authority, to promote investment in the country's infrastructure.

A separate Preqin report concluded that the private equity real estate market had failed to attract interest from institutional investors last year.

It said 23 closed-end private real estate funds reached a final close in the fourth quarter, having raised approximately $9.4bn, against $12.2bn raised by 28 funds the previous quarter.

Andrew Moylan, manager of real estate data, said: "2011 was a challenging year for the private real estate industry and ended with another slow quarter in terms of fundraising.

"While some firms have had considerable success in the fundraising market, many others have had to delay anticipated closings."

With a record number of funds currently on the road, and 53% of investors unlikely to commit to new funds in 2012, Moylan said fundraising would remain challenging in the coming year.

"Fund managers will need to ensure their offerings stand out from the crowd if they are to raise capital from a cautious investor community," he said.

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