WHY INFRASTRUCTURE SECONDARY FUNDS ARE HAVING A MOMENT Why Infrastructure Secondaries Funds Are Having A Moment

Why Infrastructure Secondaries Funds Are Having A Moment

Infrastructure Secondaries Funds: Drivers Behind the Surge in Secondary Infrastructure Investments

The infrastructure sector stands as a vast and multifaceted global investment landscape, informed by enduring secular movements that govern industry and financial markets.

Within this expanse, secondary transactions have demonstrated exceptional growth, boasting an average yearly expansion of 54% in the last five years.

Fuelled by previously established primary funds, which have collectively amassed in excess of $800 billion in the preceding decade, these secondary opportunities are proliferating.

Why Infrastructure Secondaries Funds Are Having A Moment

As the lifecycle of these funds progresses, the increasing multiplicity of infrastructure backers — typically known as general partners (GPs) — alongside the rise in investors, often referred to as limited partners (LPs), cultivates a rich foundation for secondary market activities.

This burgeoning segment owes its growth to mechanisms that are inherently market-centric, driven by the strategic moves of GPs, as well as the burgeoning demands and diversification of LPs.

WHY INFRASTRUCTURE SECONDARY FUNDS ARE HAVING A MOMENT Why Infrastructure Secondaries Funds Are Having A Moment

Why Infrastructure Secondaries Funds Are Having A Moment

Tripartite Advantages in Secondary Markets

The secondary market offers a triad of advantages, benefiting general partners (GPs), investors, and sellers. GPs gain the flexibility to manage their limited partners’ (LPs) liquidity needs, funding opportunities for portfolio growth and devising strategies to prolong investment life.

These market innovations, particularly with GP-led secondary transactions such as continuation funds, are burgeoning. They invite investment into mature and stable infrastructure assets.

Investors, on their part, experience a more liquid secondary market that allows them to finesse their portfolio management.

This includes strategies such as liquidity management, vintage rebalancing, asset reallocation, and the efficient conclusion of investments in their twilight phases.

Distinct Advantages of Diversified Portfolios

Investing in infrastructure secondaries can considerably improve an investor’s portfolio.

These transactions allow for an expedited and discernible allocation into established, operational asset collections, leading to a swift increase in net asset value.

Moreover, such portfolios provide enhanced diversification across various investment periods, effectively decreasing the unpredictability of returns.

These well-established asset groups typically yield a higher initial return and offer exposure for a shorter timeframe with the prospect of a quicker capital return.

Why Infrastructure Secondaries Funds Are Having A Moment

Enhancing Portfolio Stability through Infrastructure Investments

Infrastructure investments often bring distinctive advantages, such as high entry barriers and monopolistic traits. These aspects contribute to their robustness against economic fluctuations:

  • Regulated Returns: Income is often secured by regulation or contracts.
  • Inflation Sensitivity: They have direct or indirect links to inflation adjustments.

Such assets deliver consistent earnings, primarily through yield, due to the vital services they cover.

Today’s Opportune Moment for Infrastructure Secondary Investments

The intersection of current trends presents a pivotal opportunity for today’s infrastructure secondary market.

This market offers a complex landscape of possibilities, ranging from traditional limited partner-led deals to more complex general partner-led transactions. Investors with robust origination and due diligence capabilities stand to gain from substantial risk-adjusted returns.

Why Infrastructure Secondaries Funds Are Having A Moment

Frequently Asked Questions

Understanding Infrastructure Secondary Funds and Their Mechanisms

Infrastructure secondary funds are investment vehicles that specialise in purchasing existing stakes in infrastructure funds from other investors.

These funds operate by offering liquidity to investors who wish to exit from their infrastructure investments before the end of the fund’s life.

Commonly, the process involves the transfer of interests in private partnership assets, enabling the seller to receive capital and the buyer, often the secondary fund, to take over the investment position.

Selection Parameters for Premier Infrastructure Secondary Funds

When evaluating leading infrastructure secondary funds, investors should note several factors:

  • Track Record: Examine the historical performance and expertise of the fund managers.
  • Market Position: Assess the market reach and the fund’s ability to source high-quality investments.
  • Diversification: Understand the fund’s approach to diversification across different types of infrastructure assets and geographies.
  • Fee Structure: Consider the fee structure and ensure it aligns with the expected returns.

Brookfield’s Unique Strategy in Infrastructure Secondaries

Brookfield distinguishes its approach to infrastructure secondary investing by:

  • Integrated Platform: Exploiting synergies from its broad global platform.
  • Operational Expertise: Applying their extensive operational experience to enhance the value of their assets.
  • Scalability: Leveraging considerable capital resources to engage in larger transactions.

Typical Pathways and Strategies in Infrastructure Secondary Investments

Investment strategies in infrastructure secondaries typically involve:

  • Fund Restructurings: Transforming the legal or operational setup of existing funds to improve alignment with investors’ needs.
  • Direct Secondaries: Direct purchases of stakes in individual assets or portfolios of assets.
  • Tail-End Portfolio Sales: Acquiring assets that are in the later stage of their fund life cycle.

Benefits and Risks of Investing in Infrastructure Secondaries

Advantages:

  • Access to mature assets with a shorter time to liquidity.
  • Diversification within the infrastructure asset class.
  • Potential for accelerated deployment of capital.

Risks:

  • Valuation complexities due to the illiquid nature of the assets.
  • Longer-term exposure to unforeseen macroeconomic challenges.
  • Dependencies on underlying asset performance which may diverge from initial projections.

Pantheon’s Infrastructure Secondary Opportunities Relative to Competitors

Pantheon’s infrastructure secondary opportunities may be characterised by:

  • Strategic Focus: Emphasis on mid-market opportunities.
  • Value Addition: Proactive asset management strategies to add value beyond mere financial engineering.
  • Competitive Edge: Tailored solutions for liquidity and portfolio management designed to stand out from competitors.

Why Infrastructure Secondaries Funds Are Having A Moment


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