PREQIN QUARTERLY UPDATE: INFRASTRUCTURE Q1 218 Insight on the quarter from the leading provider of alternative assets data Content includes: Fundraising Funds in Market Institutional Investors Deals Fund Performance and Dry Powder
PREQIN QUARTERLY UPDATE: INFRASTRUCTURE, Q1 218 FOREWORD - Patrick Adefuye, Preqin Five unlisted infrastructure funds reached a final close in Q1 218 for an aggregate $5.7bn. Following a record year of fundraising in 217, this is not only the lowest amount of capital raised in a single quarter since Q3 213, but also the smallest number of funds closed since Q3 29. Funds closed in Q1 218 secured an average of 1 of their target, showing that investor demand is strong particularly for established managers. At the start of Q2 218, there are 178 unlisted infrastructure funds in market seeking an aggregate $133bn; these funds have already raised $52bn in interim closes, suggesting the possibility of a healthy fundraising environment for the rest of 218. The number and estimated aggregate value of infrastructure transactions in Q1 218 were both down on Q4 217 totals, standing at 564 transactions completed for an estimated $222bn, compared with 825 transactions worth $23bn. However, the average deal size has increased by 39% to reach $439mn. The combination of fewer deals with higher average values emphasizes the twin issues of finding attractive opportunities and high valuations facing infrastructure fund managers, both of which were highlighted as concerns by respondents to Preqin s fund manager survey at the end of 217. With regards to investment plans for the year ahead, institutional investors in infrastructure maintain a strong preference for domestic investment opportunities; however, North America-based investors are more interested in exposure to global infrastructure markets than investors in Europe and Asia. Showing more evidence of a continued strong appetite for the asset class, the proportion of investors looking to commit $1mn or more has increased from 39% in Q1 217 to 5% in Q1 218, and three-quarters of investors plan to invest in two or more funds in 218. We hope that you find this report useful and welcome any feedback you may have. For more information, please visit www.preqin.com or contact info@preqin.com. p3 p4 p5 p6 p7 Fundraising Funds in Market Institutional Investors Deals Fund Performance and Dry Powder PREQIN S ONLINE SERVICES Preqin s online product is an unrivalled infrastructure information resource. Constantly updated by our team of dedicated researchers, it represents the most comprehensive source of industry intelligence available today, with global coverage and a wide variety of information included. Get in touch today to arrange a demo of Preqin s online products: : info@preqin.com : www.preqin.com/infrastructure All rights reserved. The entire contents of Preqin Quarterly Update: Infrastructure, Q1 218 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Quarterly Update: Infrastructure, Q1 218 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Quarterly Update: Infrastructure, Q1 218. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Quarterly Update: Infrastructure, Q1 218 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Quarterly Update: Infrastructure, Q1 218 or for any expense or other loss alleged to have arisen in any way with a reader s use of this publication. 2 Preqin Ltd. 218 / www.preqin.com
DOWNLOAD DATA PACK: www.preqin.com/quarterlyupdate FUNDRAISING Unlike the record-setting highs of infrastructure fundraising in Q1 217 when bolstered by the $15.8bn closure of Global Infrastructure Partners III 21 funds secured $32bn, Q1 218 saw the lowest amount of capital raised in a single quarter since Q3 213, and the lowest number of funds closed since Q3 29. Five funds in total reached a final close, securing $5.7bn in aggregate capital over the period (Fig. 1). What has remained consistent, however, is the leading presence of Europe- and North America-focused funds within the market: in Q1 218, Europe-focused funds represented 7% ($4.bn) of aggregate capital raised, with the remaining 3% ($1.7bn) secured by North America-focused funds (Fig. 2). While many funds were not able to reach a final close in Q1 218, the five that were able to close achieved 1 of their target on average, with no funds falling short of their initial target amount (Fig. 3). The largest fund closed in the quarter was Partners Group Direct Infrastructure 216, which secured 11% of its initial 2bn target (Fig. 4). This was followed by Basalt Infrastructure Partners II, which raised $1.3bn, 29% above target. Fig. 1: Global Quarterly Unlisted Infrastructure Fundraising, Q1 213 - Q1 218 45 4 35 3 25 2 15 1 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 213 214 215 216 217 218 No. of Funds Closed Date of Final Close Aggregate Capital Raised ($bn) Fig. 2: Unlisted Infrastructure Fundraising in Q1 218 by Primary Geographic Focus Fig. 3: Average Proportion of Target Size Achieved by Unlisted Infrastructure Funds, 213 - Q1 218 5 4 3 2 1 4. 3 2 1.7 North America Europe Asia Rest of World Primary Geographic Focus No. of Funds Closed Aggregate Capital Raised ($bn) Average Proportion of Target Size Achieved 14% 1 1% 8% 6% 4% % 1 98% 97% 98% 11% 9% 213 214 215 216 217 Q1 218 Date of Final Close Fig. 4: Unlisted Infrastructure Funds Closed in Q1 218 Fund Firm Fund Size (mn) Geographic Focus Partners Group Direct Infrastructure 216 Partners Group 2,2 EUR Europe Basalt Infrastructure Partners II Basalt Infrastructure Partners 1,285 USD Europe Brookfield Infrastructure Debt Fund I Brookfield Asset Management 885 USD US Orion Energy Credit Opportunities Fund II Orion Energy Partners 816 USD US Green Return Fund - Core wpd Invest 4 EUR Europe 3
PREQIN QUARTERLY UPDATE: INFRASTRUCTURE, Q1 218 FUNDS IN MARKET At the start of Q2 218, there are 178 unlisted infrastructure funds in market collectively seeking $133bn in capital, compared to 174 funds targeting $128bn at the beginning of the year (Fig. 5). Alongside this increase in the number of funds on the road, funds currently in market are targeting an additional $5.bn. Of these funds, 61% have been in market for over a year, and 54% have held an interim close, securing $52bn; among these funds is Fondi Italiani Per Le Infrastrutture III, which secured 3.1bn for its first close, above its initial target of 3.bn. Europe-focused unlisted infrastructure funds constitute the largest proportion (46%) of funds currently in market, followed by vehicles targeting North America (26%); however, despite this, North America-focused funds are seeking $9.8bn more than their Europe-focused counterparts (Fig. 6). Therefore, there remains significant disparity between the average target size of funds in market across these regions: North America-focused funds are targeting an average of $1.6bn, compared with $632mn for Europe-focused funds. Renewable energy remains the sector targeted by the most funds in market: 34% have a main focus on this industry, representing 22% of aggregate target capital (Fig. 7). This is followed by the energy (excluding renewables) and transport sectors, which are Fig. 5: Unlisted Infrastructure Funds in Market over Time, 213-218 2 18 16 14 12 1 8 6 4 2 145 145 81 88 155 97 179 177 174 178 targeted by 11% and 9% of funds respectively. Competition for investor capital in the market remains high, and this is reflected in the willingness of fund managers to take a more diversified approach to ensure the best quality investments are obtained: 43% of funds currently in market, representing 61% of aggregate target capital, have a diversified primary investment strategy. 12 114 128 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Apr-18 No. of Funds Raising Aggregate Capital Targeted ($bn) 133 Fig. 6: Unlisted Infrastructure Funds in Market by Primary Geographic Focus Fig. 7: Unlisted Infrastructure Funds in Market by Primary Industry 9 8 7 6 5 4 46 54. 81 44.2 38 9 8 7 6 5 4 3 2 1 6 28.7 19 16.8 16 5.3 2.3 2.3 2.8 81.1 77 3 2 1 26.8 13 8.2 North America Europe Asia Rest of World Primary Geographic Focus No. of Funds Raising Aggregate Capital Targeted ($bn) Renewable Energy Energy (Excl. Renewables) Transport No. of Funds Raising Social Primary Industry Utilities Telecommunications Aggregate Capital Targeted ($bn) Diversified Fig. 8: Largest Unlisted Infrastructure Funds in Market Fund Firm Target Size (mn) Geographic Focus Energy Capital Partners IV Energy Capital Partners 6, USD US Alinda Infrastructure Fund III Alinda Capital Partners 5, USD US EIG Energy Fund XVII EIG Global Energy Partners 5, USD US ISQ Global Infrastructure Fund II I Squared Capital 5, USD US KKR Global Infrastructure Investors III KKR 5, USD US 4 Preqin Ltd. 218 / www.preqin.com
DOWNLOAD DATA PACK: www.preqin.com/quarterlyupdate INSTITUTIONAL INVESTORS Over the next 12 months, institutional investors will continue to focus on investments in their domestic markets (Fig. 9). While investors in North America and Europe show a particularly strong preference for their home markets, Asia-based investors preferences are more evenly spread across more established markets and their own. Across all regions, unlisted funds remain the most common route to market for institutional investors active in the asset class (Fig. 1). Europe- and Asia-based investors have a significantly greater propensity for direct infrastructure investments, with 38% and 35% of these investors respectively seeking this route to market, compared with just 17% of North America-based investors. The proportion (13%) of investors looking to allocate $5mn or more to unlisted infrastructure in the next 12 months has nearly doubled compared to Q1 217 (Fig. 11), and the proportion of investors planning to commit less than $1mn has declined from 61% to 49%. This, combined with an increase in the proportion of investors looking to invest in four funds or more compared to Q1 217, indicates a promising year for the infrastructure asset class. As can be seen in Fig. 12, there is a clear implication that, although the fundraising environment may remain challenging, there are still clear opportunities for fund managers to find capital commitments. Fig. 9: Regions Targeted by Infrastructure Investors in the Next 12 Months by Investor Location Proportion of Fund Searches 8% 7% 6% 5% 4% 3% 1% % 6% 52% 26% 74% 59% 53% 8% 6% 7% 7% 6% North America- Based Investors 42% Europe-Based Investors 67% 45% Asia-Based Investors North America Europe Asia Rest of World Global Fig. 1: Preferred Route to Market of Infrastructure Investors for the Next 12 Months by Investor Location Proportion of Fund Searches 9% 8% 7% 6% 5% 4% 3% 1% % 85% 17% 13% 78% 79% 38% 9% North America- Europe-Based Based Investors Investors 35% 4% Asia-Based Investors Unlisted Funds Direct Investments Listed Funds Fig. 11: Amount of Capital Investors Plan to Commit to Unlisted Infrastructure Funds in the Next 12 Months, Q1 217 vs. Q1 218 Proportion of Fund Searches 1% 9% 8% 7% 6% 5% 4% 3% 1% % 7% 32% 61% 13% 37% 49% Q1 217 Q1 218 $5mn or More $1-499mn Less than $1mn Fig. 12: Number of Unlisted Infrastructure Funds Investors Plan to Commit to in the Next 12 Months, Q1 217 vs. Q1 218 Proportion of Fund Searches 1% 9% 8% 7% 6% 5% 4% 3% 1% % 21% 64% 14% 27% 48% Q1 217 Q1 218 4 Funds or More 2-3 Funds 1 Fund 5
PREQIN QUARTERLY UPDATE: INFRASTRUCTURE, Q1 218 DEALS In Q1 218, 564 transactions were completed for an estimated $222bn; compared with 825 deals worth an estimated $23bn in Q4 217, 32% and 3% lower respectively (Fig. 13). Average deal size increased by 39% in the same period to reach $439mn (Fig. 14), suggesting that while fewer investments are being made, investors are willing to pay higher ticket prices for assets in the market. North America and Europe continue to dominate the industry, with three-quarters of all infrastructure transactions completed in these regions in Q1 218 (4% and 35% respectively, Fig. 15). While the proportion of deals completed in Europe has remained the same compared to Q1 217, the proportion of deals completed in North America has increased by five percentage points. However, the average size of deals in North America has decreased significantly over the past 12 months, from $988mn in Q1 217 to $329mn in Q1 218. Comparatively, the average size of deals completed in Europe has risen from $33mn to $677mn over the same period. As has been the overall trend within the market for the past five years, the renewable energy sector represents the majority (53%) of completed deals in Q1 218 (Fig. 16), reflecting the trend within the fundraising market. Sixty-seven percent of infrastructure deals involved secondary-stage assets, a fall of two percentage points from Q1 217; this shift is in line with the decrease in the share of greenfield deals from 29% of all deals completed in Q1 217 to 26% in Q1 218. One notable deal completed in Q1 218 was the acquisition of a 1% stake in LUCID Energy a developer of hydropower technology by Riverstone Global Energy and Power Fund VI, West Street Capital Partners VII, West Street Fund I and West Street Infrastructure Partners III, for $1.6bn. Fig. 13: Infrastructure Deals Completed Globally, Q1 213 - Q1 218 No. of Deals 9 8 7 6 5 4 3 2 1 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 213 214 215 216 217 218 No. of Deals Reported Aggregate Deal Value ($bn) Estimated Aggregate Deal Value ($bn) 35 3 25 2 15 1 5 Aggregate Deal Value ($bn) Fig. 14: Average Size of Completed Infrastructure Deals, Q1 213 - Q1 218 Average Deal Size ($mn) 7 6 5 4 3 2 1 324 346 287 265 24 49 469 352 38 335 441 517 411 376 421 511 61 486 587 316 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 439 213 214 215 216 217 218 Fig. 15: Completed Infrastructure Deals by Region, Q1 217 vs. Q1 218 Proportion of Deals 1% 9% 8% 7% 6% 5% 4% 3% 1% % 3% 4% 9% 4% 5% 4% 12% 14% 35% 35% 35% 4% Q1 217 Q1 218 Australasia Latin America Africa Asia Europe North America Fig. 16: Infrastructure Deals Completed in Q1 218 by Industry 1% 8% 17% 7% 3%1% Renewable Energy Energy (Excl. Renewables) Transport Telecoms 53% Social Utilities Other 52% 38% 4% 2% 4% Solar Power Wind Power Hydropower Other Renewables Biomass 6 Preqin Ltd. 218 / www.preqin.com
DOWNLOAD DATA PACK: www.preqin.com/quarterlyupdate FUND PERFORMANCE AND DRY POWDER Preqin s latest infrastructure performance data shows consistent returns over the long term, with an average median net IRR of 9.4% across 27-215 vintages (Fig. 17). Volatility in median net IRRs appears to have decreased in more recent vintage years; however, the interquartile range has experienced a sharp rise in 214 and 215 vintage funds. This is perhaps due to a number of top performing funds with a 214 vintage year, with six funds posting double-digit returns. Fig. 18 compares the performance of infrastructure funds against that of all other private capital funds. It illustrates that across all vintages examined, infrastructure funds have returned median net IRR of 1%, in line with most other private capital strategies. Mega funds (those of $2bn or more in size) dominate the fundraising landscape, holding the largest proportion (46%) of dry powder as at March 218 (Fig. 19). This trend has been seen since 26; however, the dominance of mega funds has lessened over the past two years. The PrEQIn Infrastructure Index stands at 28.4 index points as at June 217, significantly higher than the PrEQIn Private Capital Index (19.9) at the same date, suggesting that infrastructure is offering higher average returns than the private capital industry as a whole (Fig. 2). The figures in the index have been rebased to 1 as at 31 December 27, and the value of 28.4 indicates that infrastructure funds have more than doubled their value between 27 and H1 217. Fig. 17: Unlisted Infrastructure: Median Net IRRs and Quartile Boundaries by Vintage Year Net IRR since Inception 15% 1% 5% % 27 28 29 21 211 212 213 214 215 Top Quartile Net IRR Boundary Median Net IRR Bottom Quartile Net IRR Boundary Fig. 18: Unlisted Infrastructure vs. Other Private Capital Strategies: Median Net IRRs by Vintage Year Net IRR since Inception 18% 16% 14% 12% 1% 8% 6% 4% 2% % 24 25 26 27 28 29 21 211 212 213 214 215 Infrastructure Buyout Natural Resources Private Debt Real Estate Venture Capital Vintage Year Vintage Year Fig. 19: Unlisted Infrastructure: Dry Powder by Fund Size, 26-218 Fig. 2: PrEQIn Index: Infrastructure vs. Private Capital, Private Equity and Public Indices (Rebased to 1 as of 31 December 27) Proportion of Total Dry Powder 1% 9% 8% 7% 6% 5% 4% 3% 1% % 14% 11% 11% 19% 18% 22% 19% 17% 17% 16% 14% 15% 7% 9%1% 16%15%16% 16% 13% 14% 18% 16% 22% 21% 16% 16% 22% 23% 21% 22%19% 22% 26% 39% Dec-6 57% 57% 59% Dec-7 Dec-8 Dec-9 51% 44% 44% 46% 48% 4% 46% 38% 38% Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Mar-18 Small Funds: Less than $5mn Medium Funds: $5-999mn Large Funds: $1-1.9bn Mega Funds: $2bn or More Index Return (Rebased to 1 as of 31-Dec-27) 25 2 15 1 5 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 PrEQIn Infrastructure PrEQIn Private Capital PrEQIn Private Equity S&P Global Oil Index TR S&P Global Infrastructure Index TR 7
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