Huge internal commitment takes edge off Brookfield infrastructure achievement

By Paul Mackintosh - 02/12/13

It’s time to consider another subsector of the asset class – infrastructure funds – with Brookfield Asset Management Inc recently announcing the final close on its Brookfield Infrastructure Fund II “with equity commitments totalling US$7 billion, creating a global fund that will invest in infrastructure, with a focus on transportation, renewable power, utilities, and energy assets in North and South America, Europe and Australasia.”

Obviously, this is not quite at the same level as Apollo Global Management’s Apollo Investment Fund VIII, with its $15 billion theoretical limit and potentially up to $20 billion of investor interest. But nonetheless, it’s a more than respectable amount that speaks volumes for continuing investor interest in private equity infrastructure investment. It also comes in, according to Preqin figures, as the second largest infrastructure private equity fund ever raised, just behind another recent close, Global Infrastructure Partners II, which closed in October 2012 at $8.25 billion.

“We see strong opportunities to invest in high-quality, core infrastructure assets on an attractive risk-adjusted return basis,” said Sam Pollock, senior managing partner and chief executive officer of Brookfield’s infrastructure group. “We believe real assets such as infrastructure are an important and growing component of institutional portfolios, and we see significant potential for investments in all the regions where we operate.”

Institutions appear to agree. As Brookfield itself said, “commitments to the fund exceeded the original $5 billion fundraising target, reflecting strong investor demand,” from limited partners (LPs), “including sovereign wealth funds, insurers, and public and private pension plans. The fund has over 60 investors, half of which are first time investors.” Brookfield’s own standing, “with over US$175 billion in assets under management,” will have definitely helped investor comfort: so will the $2.8 billion which Brookfield committed to the fund from its own resources, essentially becoming its own anchor LP, as well as “aligning its interests with those of its investors.”

That huge internal commitment does slightly take the edge off Brookfield’s achievement in terms of fund size. And it’s also interesting to compare with even more recent research from Preqin’s Infrastructure Spotlight which found that 49% of Preqin’s own poll of infrastructure investors “disagree or strongly disagree that fund managers’ and investors’ interests are properly aligned when it comes to fund terms and conditions.” Furthermore, “73% of infrastructure investors surveyed by Preqin stated that the level of the management fee charged by fund managers is a key area where alignment of interests can be improved.” Brookfield may have felt compelled to put its own money on the table to quell investor doubts, because those doubts appear to be substantial.