PREQIN QUARTERLY UPDATE: INFRASTRUCTURE Q3 2017...The information presented in Preqin Quarterly...

PREQIN QUARTERLY UPDATE:INFRASTRUCTUREQ3 2017Insight on the quarter from the leading provider of alternative assets

alternative assets. intelligent data.

Content includes:FundraisingFunds in MarketInstitutional Investors DealsFund Performance and Dry Powder

© Preqin Ltd. 2017 / www.preqin.com2

PREQIN QUARTERLY UPDATE: INFRASTRUCTURE, Q3 2017

FOREWORD - Tom Carr, Preqin

Fundraising for unlisted infrastructure picked up in Q3 2017, with 17 funds securing an aggregate $12bn in capital commitments, up from 14 funds at $7.6bn in Q2. However, the capital raised remains below the record $32bn raised in Q1, which was largely due to the

$15.8bn close of Global Infrastructure Partners III in January 2017.

The trend towards capital concentration has become more pronounced over time, reflected in the future plans of investors in the asset class, with institutions continuing to commit larger sums of capital to a smaller number of funds. The proportion of investors active in infrastructure that are planning to deploy $500mn or more in the next 12 months increased from 3% in Q3 2016 to 15% in Q3 2017, while the proportion looking to commit to fewer than three funds also rose from 70% to 78% over the same period.

The large sums of capital raised by mega funds have also contributed to the growing amount of dry powder earmarked for infrastructure investment. Standing at a record high of $154bn as at September 2017, dry powder has increased by 111% from the $73bn held by unlisted infrastructure funds at the end of 2012. With dry powder levels rising, and asset valuations remaining high, fund managers face the challenge of successfully deploying this capital while maintaining the strong risk-adjusted returns that have previously attracted investors to the asset class.

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 [email protected].

All rights reserved. The entire contents of Preqin Quarterly Update: Infrastructure, Q3 2017 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, Q3 2017 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, Q3 2017. 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, Q3 2017 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, Q3 2017 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

INFRASTRUCTURE ONLINE

Infrastructure Online is Preqin’s flagship online 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 Infrastructure Online: : [email protected] | : www.preqin.com/infrastructure

p3 Fundraising

p4 Funds in Market

p5 Institutional Investors

p6 Deals

p7 Fund Performance and Dry Powder


3

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FUNDRAISING

Seventeen unlisted infrastructure funds reached a final close in Q3 2017, securing an aggregate $12bn in institutional capital

commitments. This represents a 32% drop in the number of funds holding a final close, as well as a decrease of $14bn in aggregate capital compared to Q3 last year (Fig. 1). The significant amount raised in this quarter last year was largely a result of the closure of Brookfield Infrastructure Fund III, which secured $14bn in July 2016 and represents 54% of the Q3 2016 total.

In line with previous years, North America and Europe continue to lead the fundraising market: North America-focused funds account for 54% of the aggregate capital raised since the beginning of 2016, while Europe-focused vehicles represent 31% (Fig. 2).

Infrastructure funds closed this year have had more success in meeting their fundraising targets than in previous years, achieving an average of 107% of their target (Fig. 3). This was bolstered by the closure of funds including BlackRock Global Renewable Power Fund II, which secured 165% of its initial $1bn target. The

largest infrastructure fund closed in the quarter was AMP Capital Infrastructure Debt Fund III, which raised $2.5bn, 25% above target.

Fig. 4: Five Largest Unlisted Infrastructure Funds Closed in Q3 2017

Fund Firm Fund Size (mn) Geographic Focus

AMP Capital Infrastructure Debt Fund III AMP Capital Investors 2,500 USD Australasia, Europe, North America, OECD, West Europe

BlackRock Global Renewable Power Fund II BlackRock 1,650 USD Australia, Europe, Japan, North America, OECD

BlackRock Renewable Income UK Fund BlackRock 1,100 GBP UK

First Infrastructure Capital First Infrastructure Capital Advisors 1,000 USD US

Equitix Fund IV Equitix 758 GBP Denmark, Italy, Spain, UK

Source: Preqin Infrastructure Online

4548

1521

61.1

35.2

10.37.4

0

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20

30

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60

70

North America Europe Asia Rest ofWorld

No. of Funds Closed Aggregate Capital Raised ($bn)


Primary Geographic Focus

Fig. 2: Unlisted Infrastructure Fundraising by Primary Geographic Focus, 2016 - 2017 YTD

92%97% 96%

91%99%

107%

0%10%20%30%40%50%60%70%80%90%

100%110%120%

2012 2013 2014 2015 2016 2017 YTD


Aver

age

Prop

ortio

n of

Tar

get S

ize

Achi

eved

Year of Final Close

Fig. 3: Average Proportion of Target Size Achieved by Unlisted Infrastructure Funds, 2012 - 2017 YTD

0

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No. of Funds Closed Aggregate Capital Raised ($bn)


Date of Final Close

Fig. 1: Unlisted Infrastructure Fundraising, Q1 2012 - Q3 2017



FUNDS IN MARKET

At the start of Q4 2017, there are 170 unlisted infrastructure funds in market collectively seeking $118bn in capital,

compared to 177 funds targeting $114bn at the beginning of the year (Fig. 5). While the number of funds on the road has declined slightly over this period, these vehicles are targeting a further $4.1bn.

Europe-focused unlisted infrastructure funds represent the largest proportion (42%) of funds currently in market, compared to North America (25%), Asia (9%) and all other regions (24%). However, North America-focused unlisted infrastructure funds on the road are targeting just $5.4bn less than their Europe-focused counterparts (Fig. 6). There remains a significant disparity between the average target size of funds in market across these regions: North America-focused funds are targeting an average of $1.2bn, compared with $1.1bn and $637mn for Asia- and Europe-focused funds respectively.

Competition for investor capital in the market remains high, and is reflected in the length of time these funds are spending in market: the majority (63%) of funds have been on the road for over a year (Fig. 7), while the average time spent on the road so far by unlisted funds currently in market is 21 months.

Fig. 8: Five Largest Unlisted Infrastructure Funds in Market

Fund Firm Target Size (mn) Geographic Focus

Alinda Infrastructure Fund III Alinda Capital Partners 5,000 USD Europe, North America

Green Ecological Silk Road Investment Fund Green Ecological Silk Road Investment Fund 30,000 CNY Emerging Markets, Greater China

Copenhagen Infrastructure III Copenhagen Infrastructure Partners 3,000 EUR Europe, North America

Macquarie Infrastructure Partners IV Macquarie Infrastructure and Real Assets (MIRA) 3,500 USD North America

West Street Infrastructure Partners III GS Infrastructure Investment Group 3,000 USD Europe, North America, West Europe


42

71

16

4134.1

39.5

17.0

27.6

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70

80

North America Europe Asia Rest of World

No. of Funds Raising Aggregate Capital Targeted ($bn)


Primary Geographic Focus

Fig. 6: Unlisted Infrastructure Funds in Market by Primary Geographic Focus

13%

24%

35%

16%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Less than6 Months

6-12Months

13-24Months

25-36Months

More than36 Months


Prop

ortio

n of

Fun

ds in

Mar

ket

Time Spent on the Road

Fig. 7: Time Spent on the Road by Unlisted Infrastructure Funds in Market

149 145 145155

179 177170

9381

8897

120 114 118

0

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120

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180

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Oct-17

No. of Funds Raising Aggregate Capital Targeted ($bn)


Fig. 5: Unlisted Infrastructure Funds in Market over Time, 2012 - 2017


5


INSTITUTIONAL INVESTORS

Over the next 12 months, most institutions will predominantly target domestic infrastructure opportunities (Fig. 9). North

America-based investors prefer to gain access to foreign markets through the use of global vehicles, more so than Europe- and Asia-based investors. Asia-based institutions, however, are continuing to diversify their investment portfolios, with over half of these investors targeting North America and Europe.

Unlisted funds remain the favoured route to market for the majority of active investors in the next 12 months (Fig. 10). However, the proportion of Europe-based investors with a preference for unlisted funds has fallen eight percentage points from Q3 2016, and the proportion looking to make direct

investments has risen four percentage points over the same period; as such, investors in Europe maintain a greater interest in making direct investments in the asset class than their North America- and Asia-based counterparts.

The proportion of active institutions seeking to deploy $500mn or more has increased by 12 percentage points, rising to 15% in Q3 2017 (Fig. 11). However, investors are typically looking to allocate this capital to fewer funds, with the proportion looking to commit to less than three funds rising from 70% in Q3 2016 to 78% in Q3 2017 (Fig. 12).

64%52%

33%

33%

3%15%

0%

10%

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30%

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90%

100%

Q3 2016 Q3 2017

$500mn or More

$100-499mn

Less than $100mn


Prop

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n of

Fun

d Se

arch

es

Fig. 11: Amount of Capital Investors Plan to Commit to Unlisted Infrastructure Funds in the Next 12 Months, Q3 2016 vs. Q3 2017

18% 22%

52%56%

27% 13%

3% 9%

0%

10%

20%

30%

40%

50%

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70%

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100%

Q3 2016 Q3 2017

10 Funds or More

4-9 Funds

2-3 Funds

1 Fund


Prop

ortio

n of

Fun

d Se

arch

es

Fig. 12: Number of Unlisted Infrastructure Funds Investors Plan to Commit to in the Next 12 Months, Q3 2016 vs. Q3 2017

65%

28%

57%

22%

72%

53%

11%7%

61%

9% 7% 4%

52%

42%38%

0%

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20%

30%

40%

50%

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70%

80%

North America-Based Investors

Europe-BasedInvestors

Asia-BasedInvestors

North America

Europe

Asia

Rest of World

Global


Prop

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n of

Fun

d Se

arch

es

Fig. 9: Regions Targeted by Infrastructure Investors in the Next 12 Months by Investor Location

85%

75%79%

18%

41%34%

10% 10%3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

North America-Based Investors

Europe-BasedInvestors

Asia-BasedInvestors

Unlisted Funds

Direct Investment

Listed Funds


Prop

ortio

n of

Fun

d Se

arch

es

Fig. 10: Preferred Route to Market of Infrastructure Investors in the Next 12 Months by Investor Location



Renewable Energy

Energy (Excl.Renewables)

Transport

Utilities Telecoms SocialOther

DEALS

In Q3 2017, 344 infrastructure transactions worth an estimated $123bn were completed (Fig. 13). The number of completed

deals fell by 15% from the previous quarter; the estimated aggregate value of these transactions fell by $24bn over the same period, and the average deal size fell for the second consecutive quarter to $358mn (Fig. 14). The difference in the number of deals completed and estimated aggregate deal value between quarters has been more pronounced over the past year, representing 33% and 30% declines from Q3 2016, respectively.

European deals account for the largest proportion (46%) of infrastructure deals completed in Q3 2017, marking a 16-percentage-point rise from the corresponding proportion in Q3 2016 (Fig. 15). The proportion of North America-based transactions completed over the same period fell from 35% in Q3 2016 to 29% in Q3 2017.

Similar to previous quarters, the renewable energy sector represents the majority (60%) of completed deals in Q3 (Fig. 16), with 77% of these transactions involving the acquisition of secondary stage assets. One notable deal in Q3 2017 involved Borkum Riffgrund II Offshore Wind Farm, a 450 MW, 97-turbine wind facility located in Germany. In August 2017, Global Infrastructure Partners III acquired a 50% stake in the asset for €1.17bn.

29%

46%

15%

5%3%2%

North America

Europe

Asia

Latin America

Australasia

Africa


Fig. 15: Completed Infrastructure Deals in Q3 2017 by Region


Fig. 16: Completed Infrastructure Deals in Q3 2017 by Industry

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of D

eals

Aggregate Deal Value ($bn)

Fig. 13: Infrastructure Deals Completed Globally, Q1 2013 - Q3 2017

346308 281 276

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367321308

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mn)

Fig. 14: Average Infrastructure Deal Size, Q1 2013 - Q3 2017

60%

11%

11%

5%3%

9% 1%

25%

22%

4%5%3%

Wind Power

Solar Power

Hydropower

Biomass/Biofuel Facility

OtherRenewables


7


FUND PERFORMANCE ANDDRY POWDER

The latest performance data on Preqin’s Infrastructure Online shows the consistent returns of infrastructure funds over

the long term, with median IRRs averaging 10% across vintages 2004-2014 (Fig. 17). Furthermore, Fig. 18 shows that infrastructure returns have experienced relatively low volatility between vintages 2005 and 2013. Infrastructure is the best performing asset class of all private capital funds for 2014 vintage funds; although the median net IRR is high, it is still very early in these funds’ lifespans.

The PrEQIn Infrastructure Index stands at 197.5 index points as at December 2016 (rebased to 100 as of December 2007), meaning that the infrastructure index has almost doubled in value over this

period (Fig. 19). These funds have returned slightly more than the All Private Equity index, and have significantly outperformed the S&P Global Infrastructure TR Index over this period.

Total dry powder held by unlisted infrastructure funds has reached a record high of $154bn as at September 2017, marking an increase of 111% from the $73bn held by unlisted infrastructure funds in 2012 (Fig. 20). Most of this growth is attributed to Europe-focused funds, for which dry powder has increased by $12bn since the start of the year; institutional capital held by Rest of World-focused funds has more than doubled over the same period, from $7bn to $16bn.

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North America Europe Asia Rest of World


Dry

Pow

der (

$bn)

Fig. 20: Unlisted Infrastructure Dry Powder by Fund Primary Geographic Focus, 2007 - 2017

0%

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2004

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Infrastructure

Buyout

Natural Resources

Private Debt

Real Estate

Venture Capital


Net

IRR

sinc

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Vintage Year

Fig. 18: Median Net IRRs by Vintage Year: Unlisted Infrastructure vs. Other Private Capital Strategies

197.5192.7

116.5

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PrEQIn Infrastructure PrEQIn All Private Equity*S&P Global Infrastructure TR Index


Inde

x Re

turn

(R

ebas

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100

as

of 3

1-D

ec-2

007)

Fig. 19: PrEQIn Index: Infrastructure vs. All Private Equity and S&P 500 Global Infrastructure TR Index

-40%

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Maximum Net IRR

Median Net IRR

Minimum Net IRR


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cept

ion

Vintage Year

Fig. 17: Unlisted Infrastructure: Maximum, Median and Minimum Net IRRs by Vintage Year

*PrEQIn All Private Equity Index comprises private equity, real estate, infrastructure, natural resources and private debt (excluding direct lending).


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