Why Are Infrastructure Managers Being Acquired?
Executive Summary:
- Across the private markets broadly, as the fundraising environment remains challenging, investment firms are looking to diversify their investor offerings and serve as a ‘one-stop shop’ for alternative assets.
- Institutional investors want infrastructure exposure because of its historical outperformance, resilience and low volatility in the private markets.
- In-house infrastructure teams provide specialized expertise but are difficult to build, so institutions are looking to recruit infrastructure managers who can source and execute deals.
- Moving forward, successful investment integrations may benefit from larger platforms’ scale and their teams’ unique ability to put capital to work from day one.
For anyone paying a sliver of attention to the industry of late, it would have been hard to miss the news about a multitude of large asset managers around the world that have acquired infrastructure managers in recent months. What’s the reason behind this trend?
One of the first important points to consider is that infrastructure has been one of the fastest growing areas of the private markets, largely due to its relative outperformance, resilience and low volatility. Institutional investors are seeking more exposure to the asset class, and large managers want to ensure that they have the teams in place to fulfill those demands.
In an era of prolonged high inflation, infrastructure benefits from long-dated contract structures that generally enable asset owners to pass increased operational expenses through to their customers in real time. In addition to historically being a safe bet during times of inflation, the asset class has also stood the test of time when it comes to delivering performance. Over the last 10 vintage years, our data shows that infrastructure has delivered long-term, stable returns across all regions globally.
Pooled One-Year IRR by Asset Class and Geography
Trailing 10 Vintage Years
What’s more, if we look at the highest and lowest annualized infrastructure performance over the last nearly 20 years, even in the worst five-year periods, investors didn’t experience negative performance like they may have in some other areas of real assets.
Highest 5-Year Annualized Performance
Lowest 5-Year Annualized Performance
Add onto all this the benefits of portfolio diversification through non-correlated returns and it’s pretty obvious why investors are drawn to infrastructure. But why don’t they just build their own teams? Well, it’s difficult to build an infrastructure team in-house; specialized teams are valuable. Hitting the ground running with teams that have the experience and network to source and execute on deals is essential.
Across the private markets broadly, as the fundraising environment remains challenging, investment firms are looking to diversify their investor offerings and serve as a ‘one-stop shop’ for alternative assets. The LP appetite to take advantage of multi-strategy synergies coming from just one asset manager has driven consolidation. Alongside that, specialist teams that may have faced more of an uphill battle with fundraising are prime targets for M&A.
So What?
When a trend like this takes hold, there will inevitably be mixed results. Some integrations will be successful, while others will be more challenging. The successful ones will benefit from the scale of larger platforms and will use their team’s sector expertise to put capital to work from day one.
For those that find integrations more challenging – due to organizational culture or otherwise – integrations might lead to some team spinouts in the coming years. Overall, one takeaway is clear from the abundance of transactions among these managers: There is a continued and growing interest in investing in infrastructure.
Like these insights? Take a look at our 2023 Real Assets Market Overview and stay tuned for our 2024 edition, which offers a comprehensive look at the trends, challenges and opportunities shaping real assets investment today.
Credit – This strategy focuses on providing debt capital.
Real Assets – Real Assets includes any PM fund with a strategy of Infrastructure, Natural Resources, or Real Estate.
DM Buyout – Includes any buyout fund that is primarily investing in developed markets of North America, Western Europe and Global.
EU Buyout – Any buyout fund primarily investing in the European Union.
Venture Capital – Venture Capital incudes any PM fund focused on financing startups, early-stage, late stage, and emerging companies or a combination of multiple investment stages of startups.
Real Estate – Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures.
Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources.
Natural Resources – An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.
MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries.
VC/Growth – Includes all funds with a strategy of venture capital or growth equity.
BofAML High Yield Index – The BofAML High Yield index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.
Credit Suisse Leveraged Loan Index – The CS Leveraged Loan Index represents tradable, senior-secured, U.S. dollardenominated non-investment grade loans.
MSCI World Energy Sector Index – The MSCI World Energy Sector Index measures the performance of securities classified in the GICS Energy sector.
DJ Brookfield Global Infrastructure Index – The DJ Brookfield Global Infrastructure Index is designed to measure the performance of companies globally that are operators of pure-play infrastructure assets.
MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries.
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