ManagementInfra-focussed PE fund raising to gain steam in 2010
Infrastructure focussed private equity fund raising is likely to rise next year as investors consider it a safer option that will balance their investment portfolio, according to global research firm Preqin.
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In 2009 to date just 10 infrastructure funds have reached a final close, raising an aggregate $6.2 billion. This represents an 82 per cent decline from $34 billion capital raised in 2008, Preqin said.
However, investors are expected to resume investment in infrastructure funds in 2010 as they consider investment in the asset class a hedge against other options.
"Many investors plan to resume investing in 2010, and infrastructure’s low correlation to other asset classes, combined with its inflation hedge characteristics, makes it an appealing investment," it said.
As investors were forced to assess their existing portfolios during 2009 following the global economic meltdown, a majority of investors stated they had not made any new commitments in 2009.
"The financial crisis has filtered down through every level of the infrastructure asset class, affecting not only investors and fund managers, but also the number of projects reaching financial close in 2009," Preqin said.
The infrastructure market, which enjoyed a sustained growth over 2004 to 2007, saw a reversal of fortune during 2009.
An unlisted infrastructure fund generally means a vehicle, usually with a limited partnership-type structure, that is not listed on stock market. The fund invests in infrastructure assets and may also invest in infrastructure- related companies.
During 2009 there has been a decrease in the number of deals made with only 112 transactions finalised so far this year, a 41 per cent drop from 2008"s total of 191.
"This decrease will represent the first drop in annual deal volume since the emergence of the unlisted infrastructure asset class, and is indicative of the difficult conditions that fund managers have been enduring over the past 12 months," Preqin said.
However, compared to the drop in recent fundraising figures, the drop in deal volume between 2008 and 2009 is less severe.
"This shows that fund managers have continued to invest capital throughout the year despite poor fundraising conditions and the lack of leverage," the report said.
Going forward, fund managers will have to work hard to attract investor commitments as investors are sure to be more cautious before committing capital.
"The asset class will continue to play an important role within the investment portfolios of many institutional investors, both in the coming 12 months and over the long term," Preqin said.