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The Rise of Infrastructure Mega Funds

With Blackstone seeking $40 billion for a new fund, infrastructure investing is being increasingly dominated by a small number of large managers.

  • Staff

Blackstone Group’s record-setting infrastructure investment fund may signal further concentration of such assets in the hands of just a few asset managers.

While allocations to infrastructure investments are at all-time highs, this capital is largely flowing to a small group of large fund managers, according to a new report from data provider Preqin. Blackstone, the world’s largest private-equity firm, announced May 20 that it was raising a $40 billion fund that may include a $20 billion anchor commitment from the Public Investment Fund of Saudi Arabia.

Last year, three-quarters of the global capital raised by unlisted infrastructure funds went to pools with $1.5 billion or more in investor commitments – up from 56 percent of capital in 2015, and 48 percent in 2014, according to Preqin. Such large funds already account for 76 percent of fundraising this year.

“Investors are tending to commit more capital to fewer managers, so mega funds represent a greater proportion of overall fundraising activity,” said Tom Carr, Preqin’s head of real assets products, in a statement Friday. “Investors may be attracted to the ability of the largest fund managers to procure attractive deal opportunities, as well as their proven track record in the asset class.”

Morgan Stanley analysts called Blackstone’s new fund with its “staggering” fundraising target a “paradigm shift” for infrastructure investing. With leverage, the private-equity firm said it expects to invest more than $100 billion in primarily U.S. infrastructure projects.

“Blackstone sees a pivotal moment to raise $40 billion of equity capital and invest in aging U.S. infrastructure,” the Morgan Stanley analysts said in a research note.

The $40 billion target is more than twice the size of any previous infrastructure pools, according to Preqin. The $20 billion anchor commitment from Saudi Arabia’s Public Investment Fund would be the largest single contribution by any investor to an infrastructure fund.

“The scale of many modern infrastructure projects allows investors to deploy significant amounts of capital,” Carr said.

Preqin currently tracks 86 infrastructure funds that have closed with more than $1.5 billion of investor commitments. As a group, these funds raised $279 billion.

Global Infrastructure Partners’ third eponymous pool was the largest fund closed since January 2016, with $15.8 billion in assets, the Preqin report shows. Close behind is Brookfield Infrastructure Fund III, which closed in July of last year after raising $14 billion.