Speaker 1Hi, I'm Bruno Aldrich, and welcome to the Infrastructure Investor Podcast. Fundraising for unlisted closed-ended vehicles hit a low point in 2024, with circa $92 billion raised. Last year's tally was the lowest since 2015, and the first time in nearly a decade that fundraising totals have dipped below the $100 billion mark. It's also the second year in a row that fundraising has contracted. That, combined with ever-larger amounts of time spent raising these funds, raises several important questions about the direction of the market. To help me answer those questions, I'm joined by Infrastructure Investor Deputy Editor Calliope Gorntes and Americas Editor Zach Bentley. I'm Bruno Aldrich, Senior Editor of Infrastructure Investor, and this is the Infrastructure Investor Podcast. Hi, Zach, Calliope, welcome. Hi, Bruno. Hi. Hi, Bruno. So this is going to be our first team podcast of the year, and we're going to start by talking about fundraising. We recently published our full-year 2024 fundraising figures for unlisted closed-end structures. It's fair to say this wasn't a great year, but there is lots to talk about. So let me just frame this for our listeners for a moment. So how bad was 2024? Basically, it was the worst fundraising year since 2015. So around $92 billion got raised in 2020 form. So this was the first time fundraising dipped below the $100 billion fundraising mark in nearly a decade. So 2024 was considerably worse than the $128 billion raised in 2023, and about $100 billion less than the $194 billion raised in 2021. So that's why we're going to talk about the last three years, which is still the asset classes high watermark. So before we get started in earnest, just a small caveat, we obviously, and we and a few others, what we're doing here is we are recording funds that hit a final close in a certain year. So obviously, this doesn't mean that all of this money was raised in 2024. It wasn't. This is just the point at which these funds have hit a final close, and obviously this approach. It has, I think, obvious limitations, but listeners should be aware. So Zach Kliopi and whoever wants to go first, go for it. I think we sort of expected to end up here, didn't we?
Speaker 2I think it's interesting because we did expect to end up here, but I think I'm not sure we did until maybe the latter half of 2024. And I was just thinking that, you know, when we were reporting the 2023 figures and how bad it was, I'm not sure we expected 2024 to be worse. That's a good point. And I do remember, you know, speaking to people, especially in the first half of last year, you know, I think sentiment was more positive. People were kind of not just hoping, but, you know, kind of feeling that things were a bit better. Yeah. So I think it was probably quite disappointing that '24 was even worse than '23. And the other thing I thought, I think most people like being right, but I think in this case we may have preferred to have missed the mark when we predicted that '24 would
Speaker 1be worse. Definitely agree there. Zach, I mean, this is, you know, yet again, a story of megafunds closing or not closing in this case, isn't it? And this is why we are where we are.
Speaker 3Yeah. I think if we're talking about expectations, perhaps the fingers should be pointed at ourselves necessarily more than the market dynamics itself. I think we kind of just expected a better 2024 because of 2023, as Gladly was just hinting at. Yeah. I think that's a good point. And so. It's just a demonstration of that time that's being taken on the road.
Speaker 2I think an interesting kind of exception here, in a way, is Omnis Capital that recently closed their fifth fund above their hard cap on 1.8 billion euros, and the hard cap was 1.65 billion. Their target size for this latest fund was nearly three times as large as their predecessor fund, which had closed on 660 million. And I also think it's interesting that despite the long fundraising process for them, deployment seems to be progressing pretty quickly because at the time that they announced their final close, they've already invested in seven portfolio companies and the target for the fund is to invest in 10. So there's that upside. But also, I think it's interesting because if we take that within the context of our fundraising report, we saw that there was a significant drop in the percentage of renewable energy funds, renewable strategies. So where we had 40%, I believe, accounting for the funds closed compared to 73% that was in 2023. But yet the Omnis fund, you know, is energy transition focused. So it kind of goes against that trend, I guess.
Speaker 1Yeah, that's something that is also going to be interesting to see as, you know, this year and the next. Is this the beginning of a trend? It's true, we had a big drop in the fact that all sector focused funds, just 40% was renewables compared to 73%. Is that going to continue? You know, we've certainly had headwinds in the sector and lots of negative headlines. So it's going to be really interesting to see if that's going to take hold.
Speaker 3I would say maybe a 70% of fundraising being renewables is not a healthy place to be at for the SXS in general either.
Speaker 1That's a good point, Zach. And I think this is so, you know, just to contextualize further in 2021, 53% of all sector focused funds were renewables funds. So that's kind of more in line in 2022. Actually, 43% of sector focused funds were renewables funds. So that's pretty much in line with 2024. So you're right. 2023 is an outlier here.
Speaker 3I just want to add one further thing about the time being taken. One of our conferences last year, a Canadian investor said that they were concerned by what they saw as fundraising distractions by managers. That managers were getting caught up in the fundraising process and that they preferred managers to end fundraising maybe slightly below target and then, I don't know if it's a good thing or a bad thing, but I think it's a really good thing to concentrate on the investment process rather than continuing to try and meet a target.
Speaker 1Yeah, and that's precisely what I was alluding earlier on when I referenced Anton. But really, Anton is just an example. I think in 2025, you're going to look at a lot of the funds closed and especially those with larger targets and you're going to find a relatively long slog to get to the end. This is what I was alluding to. And Zach, you're kind of saying, yeah, managers are adapting. They're kind of keeping targets. They're not letting them. Yeah. They're not letting them balloon. So it's stagnating in a way. At some point, if it reverses course, then we have the market actually going into reverse, right? So it's going to be a really interesting dynamic that. Am I the only one where this feels a little bit like there's a bit of cognitive dissonance going on because, you know, we keep hearing that there's room for growth. Zach, you alluded earlier on LPL locations still to be done for infrastructure, lots of capital demand for AI infrastructure, energy transition, etc. And then two years in a row of fundraising numbers going down and down. And that's something, again, I wrote in my weekly, but I'd love to hear what you guys think about that.
Speaker 3I think the two dynamics can coexist together, that there's plenty of room for growth. There's plenty of LPs who haven't even allocated to the asset class, never mind under allocated. And there's plenty of LPs who will say in a survey that they want to increase more to infrastructure. And yet for reasons that are to do with both the LPs and the infrastructure. That doesn't necessarily happen.
Speaker 2I wonder if the fact that continuation funds have been such a big part of the story lately because of this whole fundraising environment, if we're maybe missing out or not counting the LP capital that goes into those funds.
Speaker 1No, we do count them depending on how they are raised. They might not make it into the top 10, but what we do. But there are, you know, there are various structures and, you know, money put directly into platforms. That's a good question. That's harder to track. And certainly. It certainly competes directly with money allocated to funds to a certain extent. So those dynamics, I mean, your larger point, I think, stands. So what are we saying here, Zach? You seem to be saying there's going to be a pickup, but we're not going to predict exactly when that's going to take place.
Speaker 3Look, there's a lot of megafunds in market right now. And I think we can confidently expect that this time next year when we sit down to record this podcast, these numbers will look significantly better. If you take GIP, which is targeting $25 billion, we should expect that to close in the next few months. CIP should close this year. EQT targeting $20 billion, they should close soon. And so I think we can confidently say that these numbers will look better. I don't think that necessarily means that when we talk this time next year, we should be celebrating with we're back, baby. I think if we have a blowout year, so to speak, that will be followed by another few years of relative lull. And perhaps this is the cycle that we're now in for quite some years in the foreseeable future.
Speaker 1Yeah, exactly. So this, I think, becomes the new dynamic, perhaps for a while, which is, you know, a great year followed by a not so great year. But we should bear in mind that we were on completely on an upwards trajectory, never mind the blip that was COVID. And that ended up being a small blip in terms of fundraising. And then 2021, 2022, it was all up, up, up. But now we may actually be. On more of, you know, up and down trajectory, right?
Speaker 3Yeah, I think that's exactly what our glass will look like. Might not be a clear narrative to tell from the next few years.
Speaker 2And I think I would just add that maybe it's a combination of two things. One, the asset class. I know it's still fairly young, but it is also maturing. So that combined, again, with what I said before about the macroeconomic environment, you know, maybe, maybe things will be a little flat. For the next couple of years, at least.
Speaker 1I wonder if you think also if some of this may or may not reverse course with what I'll just call thematic fundraising in a very general sense. I mean, we've all heard about, you know, the multi-billion dollar AI infrastructure vehicles being planned, which is a supposedly a combo of digital infra and power slash transition investments all in one. I mean, risk profile of some of these funds to be determined. But I'm very curious. I don't know about you. About the success or not of these vehicles. And I also wonder if they will get allocations from multiple asset classes. I mean, I could definitely see an LP allocating out of an infra bucket and real estate bucket, maybe even a PE bucket if there's a lot of development there. I don't know. What do you, how do you see this?
Speaker 3I think the vehicles that are being touted for that thematic are at such, I'd say, nascent stages and of large size that I don't think we've seen necessarily movement in 2025 on those. But yeah, it'll be interesting to see, as you say, how those are received by LPs and what they continue to consider infrastructure or otherwise. But I think what is interesting looking at what was closed in 2024 compared to 2023, and this just may be year by year dynamics, but 2023, we had a substantial amount raised by debt funds. And as alluded to before, a substantial amount raised by energy transition funds, whereas this year, most of the largest funds were more generalist. In their strategies, whether that was differentiated by geography or not, they were all more generalist.
Speaker 1I think the geographic point is one worth spending some time on. I expect this will also have ups and downs in different years. But actually, one highlight of 2024 that we shouldn't ignore is the amount of Asia-focused funds that we had in the top 10 funds closed. And obviously, I'm thinking about KKR's second Asia vehicle. That's actually the second largest. That's the largest fund that closed last year. But then we also have Stone Peak's debut Asia fund. That was the fifth largest fund closed last year. And then we had, okay, this is a bit different. We had GIP's second Australia fund. That was the ninth. And then also actually, not just Asia, but also taking in Latin America, we also had GIP's emerging markets fund. And so that's pretty much half of the top 10, you know, with regional vehicles and a strong Asia flavor, if you want to call it that. That's not something, you know, we would have had in previous years, I think.
Speaker 3Yeah. Although a few of those funds were a long time in the making, let's say. So we may not see this dynamic reappear for a little bit.
Speaker 1Yeah. Though I would say Asia funds are here to stay. It may, you know, be something that pops up every couple of years. But I think these franchises from KKR, Stone Peak, Macquarie, you know, I think they're going to keep getting larger. That's my sense.
Speaker 2Aside from geography, the other thing that I found interesting was in strategies. And I think the biggest winner, quote unquote, was the value-add space. It really jumped significantly from 13% in 2023 to 34% in 2024. I don't know what you think, but given how the asset class is evolving, probably we can expect value-add to kind of be in this predominant position.
Speaker 1Yeah. I think this is a point of debate, really. We've heard voices saying that it would make sense in the future. this climate for value-add funds to be the predominant ones. And actually, that happened last year. Other people keep beating the core drumbeat and saying there's still benefits to it. But I think what's really interesting, and I think that comes across in our presentation, is an, okay, maybe we shouldn't do this, but if you lump together core and core plus as being on the lower side of the risk spectrum generally, and then value-add opportunistic on the higher end, then you end up with a pretty even split. So, meaning LPs last year ended up getting exposure across the risk spectrum. But no doubt, value-add is the most popular strategy.
Speaker 3Yeah. I would just caveat this with these figures are for closed-end funds, and you have large open-end core funds like Brookfield and KKR, which last year exhibited a return to fundraising that they'd not seen in a good couple of years. So, there is good progress on the core side. That may not be Sharia. These closed-end fund figures.
Speaker 1Yeah, that's a very fair point. With Blackstone doing a bit of balancing on the higher end of the risk spectrum with its open-ended one. Okay. I think we can wrap up by saying that 2025 is going to be better, which is the non-prediction of the year. Well, what else caught your eye? What else, what kind of note do you want to end on? What's going through your minds?
Speaker 2One thing that really struck me, this seemed very contradictory. So, on the one hand, there's a lot of uncertainty. There's a lot of uncertainty. On the one hand, you had a proportion of oversubscribed fund closes increasing, but also the portion of undersubscribed funds increasing. So, I'm not sure what that means, unless it's an indication of consolidation where bigger managers are managing to close their funds oversubscribed. I don't know.
Speaker 3I would just build on that and say that if you look at the funds which were undersubscribed in 2022, that was 29% of funds. If you look at that for 2023, that was 30%. It was 38% of the funds. And for 2024, the funds which were undersubscribed was 43% of funds. So, I would say my bold prediction for 2025 is that we will see at least half of funds closed, which are undersubscribed.
Speaker 1That's a fair bet. We shouldn't forget that 2021 and 2022, it doesn't need repeating, but I'll just say it was a bit mad. I mean, we even did articles about how, you know, the percentage of oversubscription in that time period was, a little bit off the charts and targets almost became like soft targets. So, that it would be nice if that were to continue, but I think that was always going to be a moment in time to a certain extent.
Speaker 2Could there be an upside to slower fundraising in the sense that, you know, we've heard in the past about lots of dry powder being available and not having the opportunity to be deployed or having enough good opportunities to deploy capital. So, maybe a more subdued fundraising environment could be a good thing in that sense, in terms of ability and ease and investing that capital.
Speaker 1Yeah, I think that's a pretty strong point. I think we could and maybe should actually do an entire podcast on that subject, because we have a lot to talk about there. But I also think it's a great note to end on. So, Calliope, Zach, thanks very much for your insights, and I will see you soon. That, again, was infrastructure investor, deputy editor, Calliope Gorntis and America's editor, Zach Bentley. To hear more of our episodes, head over to InfrastructureInvestor.com forward slash podcast, or you can search and subscribe to the Infrastructure Investor podcast wherever you like to listen.
Speaker 4We'll see you next time.
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