In need of a Phoenix

The dearth of new funding threatens market development

Fundraising has collapsed. Just $1.3 billion was raised by infrastructure funds in the first quarter of this year, according to Probitas, 80 percent down on healthier times. The credit crunch means few deals are being done at the moment, so the dearth of new equity funding won’t cause a crisis in the short term. But if things don’t pick up soon, the hit will be severe.

Some problems are to be expected. Private equity fundraising also crashed in the first quarter, to $15 billion from $82 billion in the same period of the previous year, according to Dow Jones. But infrastructure is a young asset class, making the tumble much more severe.

Many of the funds coming to market are first timers, from the likes of KKR and Alterna, which can’t tap into existing relationships, making fundraising tricky in the short term. Some might be forced to delay things until the market improves.

The market could stall completely if the funding gap makes deals impossible to complete for another year – already evident in some of the schemes stuck for months for lack of credit. On the debt side, things are now so extreme that the UK government has been forced to lend directly to some projects, such as Greater Manchester’s waste plan which commercial banks won’t sign off on.

But governments can only afford to rescue a few deals. New investors are emerging for infrastructure deals, especially among pension funds. But if the crunch continues to hit infra so hard, the market could become a desert this year.