Infrastructure managers are having a tough time raising their latest funds, signaling an expected industry shakeout.
The managers are almost out of money from the 2006-2008 heydays when about 50 funds collectively raised close to $50 billion a year, mostly in private equity-style funds.
Last year, a little more than half that was raised, with most of the money going to just a few managers.
Industry Funds Management, for example, raised a total of $8.3 billion for an infrastructure fund last year. By contrast, CVC Capital Partners Ltd. called it quits on efforts to raise a e2 billion ($2.6 billion) infrastructure fund, even though it's about to close on a e10.5 billion leveraged buyout fund.
Infrastructure fund managers closed on $26.9 billion last year, down 67% from the $44.8 billion raised in 2008.
Concentration of assets in the hands of a smaller group of managers will cause a drop-off in the number of infrastructure managers, with managers focused on stable, income-producing investments especially vulnerable, said Duncan Hale, senior investment consultant and head of global infrastructure at Towers Watson & Co. in London.
There's pressure on infrastructure managers' business models that will result in some managers merging and others fading away over time, Mr. Hale said.
Traditional infrastructure vehicles have a five-year investment period, which means many of the funds raised in 2007 and 2008 are coming to the end of the their investment periods — the time in which managers have to spend the capital raised. Now, these same managers are out raising their next funds, and are finding less money being invested in infrastructure, Mr. Hale said.
According to London-based alternative investment research firm Preqin, 144 infrastructure funds are attempting to secure a total of $93 billion from increasingly choosy investors. While there has been an increase in institutions creating broad “real asset” portfolios, infrastructure assets dropped 10.4% as of Dec. 31, according to the most recent of Pensions & Investments' annual surveys of managers of U.S. institutional, tax-exempt assets.
“There's a smaller pie for people to take a piece of,” Mr. Hale said, and most of the pie is being taken by a handful of managers.