Real Assets Fundraising has been Lagging, but Digital Infrastructure Emerges as Red-Hot Sub Strategy: Report

Real asset fundraising figures have “lagged recently,” with fundraising during the past 4 quarters reaching its lowest levels since “late 2012,” according to a new report from Pitchbook.

As noted in the report from Pitchbook, infrastructure has managed to continue attracting considerable funding, meanwhile, the oil and gas fundraising “remains sluggish.” The ancillary strategies in the real assets space— including agriculture, metals & mining, and timber—have “also seen relatively weak fundraising figures,” the report revealed.

Turning to performance, the bifurcation seen in fundraising seems to be “well-supported,” the report added while noting that infrastructure funds continue to “exhibit low return volatility: Even during the worst of the COVID-19 pandemic downturn, one-year pooled returns for infrastructure funds never dipped below zero.” The report also mentioned that infrastructure has seen fairly consistent fundraising levels for the past several years, and the Pitchbook team now expects significant fundraises should take place in “the coming quarters.”

During the COVID-19 crisis, infrastructure funds were reportedly able to benefit from “recession-resistant” business models and a fairly fast rebound in consumer spending.

As we look ahead, the sector could potentially benefit further from “inflationary pressure,” the report revealed. As noted in the comprehensive report, infrastructure companies are “watching carefully to see the ways government infrastructure spending responds in the aftermath of COVID-19—particularly regarding the role public-private partnerships (PPPs) will play in large spending initiatives in the US, Canada, and Europe.”

As mentioned in the report:

“Real assets fundraising figures have [been stagnant or lagging,] with fundraising over the past four quarters hitting its lowest levels since late 2012. Between Q2 2020 and Q1 2021, just 73 funds closed, totaling $62.7 billion. … Infrastructure continues to attract capital, and fundraising remains healthy. Massive funds currently in the market from EQT (STO: EQT) and Copenhagen Infrastructure Partners will likely propel infrastructure’s fundraising figures even higher in the coming quarters.”

As noted in the report, these European managers have “scaled quickly as LP demand for steady returns has risen unabated over the past decade.”

Meanwhile, Oil and gas has reportedly seen few funds raised “as many institutional LPs allocate cash to more environmentally friendly strategies.” Additionally, few open funds exist that are “raising capital to target the strategy directly,” the report added while noting that the ancillary strategies in the real assets space— “including agriculture, metals & mining, and timber—have also seen relatively weak fundraising figures, though for different reasons.”

As mentioned in the report:

“Another red-hot sub-strategy has been digital infrastructure. The pandemic only heightened what was already a growing need for extensive connectivity and data infrastructure investment to underpin the growth of the digital economy. Cellular towers remain a key investment theme in Europe, while fiberoptic cable (especially so-called fiber-to-home connections) and hyperscale or enterprise-grade data centers present significant opportunities in both North America and Europe.”

Digital Colony, a subsidiary of Colony Capital (NYS: CLNY), has been “one of the most active investors in the space over the past year,” the report revealed.

The report also pointed out that investing out of a massive $4.05 billion first-time fundraise that closed in 2019, Digital Colony finalized its acquisition of Boingo Wireless, an airport wifi provider, “at an $854.0 million EV in early June.”

Colony has also made balance sheet investments in Digital Bridge portfolio firms DataBank, a retail data center provider, and Vantage Data Centers, which leases hyperscale data facilities to Facebook (NASDAQ: FB), and has been steadily expanding business operations across North America and Europe.

In May 2021, Digital Colony also entered an agreement to acquire Landmark Dividend, another digital infrastructure company managing data center assets (for $972.0 million).

You may check out the complete report from Pitchbook here.

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