Funds that invest in infrastructure and renewable energy raised a record USD 45.57bn in first, second or third closes in the six months through June, offsetting the worst first half for final closes in more than a decade.

Global Infrastructure Partners (GIP) led the activity, securing at least USD 15bn in the first close of its Global Infrastructure Fund V. Its target of USD 25bn-30bn, if successful, will make it the largest infrastructure fund ever. EQT raised EUR 11bn for its EQT Infrastructure Fund VI in a first close at the end of June, taking it halfway to its EUR 20bn target. Brookfield Asset Management raised USD 1.3bn, making the total size of its vehicle USD 24bn, just shy of its USD 25bn target. 

This helped mitigate the impact of 17 investment vehicles raising just USD 7.23bn in final closes in the six months through June, the least since the first half of 2012, according to data compiled by Infralogic. Activity slumped to USD 3.9bn raised by six funds in the second quarter of this year, according to Infralogic's 2Q Fundraising Report. Market watchers attributed this to an M&A slowdown making some limited partners (LPs) cautious, and to rising interest rates luring investors to higher-yielding fixed income.

“LPs are forced to be much more selective, which is making fundraising cycles longer than what might have been two years ago,” says the manager of a European fund-of-funds. “The overall capital pool, however, remains healthy.”

The main theme that emerged from Infralogic’s 1Q Fundraising Report was that of general partners (GPs) delaying final close timelines to accommodate for constrained LP allocations. In previous cycles in which GIP and Brookfield were in the market at the same time with flagship funds, capital allocations were hugely saturated. Now, the market appears more evenly balanced.

“Most institutional investors have fixed, long-term allocation plans to infrastructure,” says a senior figure at a London-based global placement agent. “So while rising interest rates may see some capital diverted back towards fixed-income, overall capital allocations to infra funds will remain resilient.” 

There are short-term issues to resolve in order to unlock this capital, which may help explain why interim close volumes are not yet translating to final close figures. 

“The market has seen something of a traffic jam in exits - lower valuations mean that many GPs are struggling to offload assets, or holding onto them for longer,” says one senior lawyer at a fund advisory firm. “This has had the effect of slowing down fundraising as LPs wait for these distributions before being able to make new commitments.”

Market Outlook

Industry participants that Infralogic spoke with suggested that the real test now is whether LPs will have the confidence in the market to get fundraising processes over the line. From 2018 to 2021, the average time between launch and final close for funds bigger than USD 5bn was 11 months. 

As highlighted in Infralogic’s Fund Market Tracker for the second quarter, at least USD 432bn is currently being raised. Around USD 90bn is likely to be secured at the final close by the end of 2023, according to an Infralogic estimate.

Five of the biggest interim fund close in 1H 2023

In a sign of the difficulty of raising funds in all segments, GIP for the first time appointed an external placement agent, Campbell Lutyens. EQT was originally targeting a first close towards the end of 2022 rather than June this year. The Federal Reserve last month raised interest rates to the highest level in 22 years, with the target for the benchmark federal funds rate now at 5.25%-5.5%.

Largest renewables fund

At the smaller end of the mega fund scale, Copenhagen Infrastructure Partners raised EUR 5.6bn in the first close of its Copenhagen Infrastructure Fund V, which is on track to become the largest renewables fund ever. DigitalBridge held a USD 3bn first close of its DigitalBridge Partners III. The investment vehicle, with a USD 12bn target, would be by far the largest telecoms-focused fund on record.

Every fund that held a final close during the quarter was in the mid-market space or lower. Only one so far this year, Just Climate CAF I, has held a final close above USD 1bn, with the Luxembourg-based manager closing with USD 1.5bn of commitments in June.

Funds that reached final close in 2Q23

Just Climate CAF I was one of three energy transition funds to hold a final close in the quarter. SUSI Partners held a final close of its first Asia-focused fund, SUSI Asia Energy Transition Fund, securing USD 120m. Mensha Ventures raised USD 1bn for its Green Tech Fund. 

On the infrastructure side, Schroders held a final close of the only debt fund of the quarter. The EUR 500m it raised for Schroder Euro IG Infra Debt Fund V was below the EUR 750m target.