There's been much talk — but little action — about infrastructure lately.
Fundraising, although somewhat improved, is still fairly dismal.
While many institutional investors such as the California Public Employees' Retirement System, the California State Teachers' Retirement System and Florida State Board of Investment Board have infrastructure allocations, few have made commitments.
For example, CalPERS' only infrastructure investment this year was a direct one. In June, the board of the $204.4 billion system approved committing up to £106 million ($157 million) to acquire a 12.7% equity stake in London Gatwick Airport from Global Infrastructure Partners.
What's causing the inaction is the fact that money is tight. Investors are still smarting over the hits their overall portfolios took during the worldwide economic crisis. What's more, infrastructure — which was supposed to be a low-leverage, income producing and low risk investment — hasn't performed that way.
It's not for lack of opportunity. Managers are trying to raise close to $90 billion for infrastructure funds right now. But according to a survey by London-based researcher Preqin, infrastructure investment managers raised only $6.7 billion in six funds in the second quarter. That's better than the $5.9 billion raised in five funds in the first quarter and $900 million in one fund in the second quarter of 2009, but it's still tiny compared to the amount managers are seeking to raise .
In the second quarter, there were 99 funds trying to raise $88 billion, but in the first four months of this year only nine funds with a combined $11.7 billion managed to close, according to Preqin.
Even marquee investors, and those with flexible fees and terms, are having a tough slog. Blackstone Group has been trying to raise between $3 billion and $5 billion in an infrastructure fund since June 2009. Kohlberg Kravis Roberts & Co. has been raising its $4 billion KKR Infrastructure Fund for more than a year. Deutsche Bank, which shuttered its U.S. infrastructure group last year, is still in the market with the e3 billion ($3.96 billion) RREEF Pan-European Infrastructure Fund II.
“Infrastructure deals are so much bigger than buying a building or a warehouse,” said Matthew A. Posthuma, partner at the law firm of Mayer Brown LLP, Chicago. Infrastructure projects require investments in the billions of dollars, compared to the average commercial real estate transaction, which call for far smaller capital investments.
“Fundraising is down for everybody. Infrastructure funds need to raise enough money to give them the scale.”