Toronto-based Brookfield Asset Management has held a final close on $28 billion for its fifth flagship fund, Brookfield Infrastructure Fund V. Another $2 billion was raised for co-investments.
The fund is the biggest closed-end infrastructure vehicle ever raised, surpassing Global Infrastructure Partners‘ fourth flagship, which closed in 2019 on $22 billion. It is also the biggest fund Brookfield has ever raised across all asset classes.
Fund V’s original target at launch in late 2021 was $25 billion, and the oversubscription is notable for taking place while general fundraising remains subdued. To put the final close figure in perspective, the $28 billion raised was more than the $27.3 billion amassed for unlisted, closed-end infrastructure in Q1-Q3 of this year, according to our data.
The fifth flagship is 40 percent larger than its predecessor, which closed on $20 billion in 2020. Some 200 LPs backed Fund V. However, it should be noted that Brookfield usually contributes 25 percent to its funds, and hence $7 billion of the final tally will be provided by the manager through listed entities Brookfield Infrastructure Partners and Brookfield Renewable Partners.
Approximately 40 percent of Fund V’s capital has been deployed in six investments, including marquee deals in renewables, transport, data centres and telecom tower assets.
While the fund may have closed, Brookfield is not finished with raising capital from LPs. In contrast to some managers, Brookfield does not raise a co-investment sidecar alongside the main fund and instead taps LPs for co-investment capital as and when the opportunity comes around, managing partner Rene Lubianski told Infrastructure Investor.
“We’ve made six investments in the fund, two of them have offered co-investment so the $2 billion is how much we’ve raised for those deals. There will be more,” he said. “Typically, in the past, we’ve offered and had LPs take up between 20 and 25 percent of the fund in co-investment. Our LPs are typically quite hungry for co-investment and they take up what we offer them.”
While other managers in 2023’s fundraising cycle have also noted a reduction in the size of some LP investments, Lubianski, on the whole, recognised the opposite trend for BIF V.
“LPs continue to increase the average size of their commitments. The average ticket size for this fund is about $100 million, historically it’s been more $40 million to $50 million. We’ve had some very large LP commitments in this fund, larger than we’ve ever received before,” he revealed.
He added: “We had to extend the fundraising by four months, which we don’t typically have to do. That was really at the request of LPs who needed a little bit longer to process their commitments. Their commitments, for the most part, didn’t waver but many LPs stopped investing. We definitely felt and noticed what was going on in the fundraising market, but we’re fortunate that it wasn’t to the same extent that perhaps others were feeling.”
The largest share of LP capital for Brookfield still comes from North America, which comprised 40 percent of the investors, according to Lubianski. Asia-Pacific (30 percent) also contributed a significant amount, as did the Middle East (15 percent). The remainder came from European and Latin American investors.
Brookfield Fund V’s final close comes hot on the heels of the $6 billion final close of its third debt fund, the largest pure-play infrastructure debt vehicle ever raised. It also comes a little more than a year after the $15 billion oversubscribed closing of the Brookfield Global Transition Fund I, which remains the world’s largest energy transition fund and which is now fundraising for its second effort. The next flagship vehicle, according to Lubianski, is probably around 18 months away.
“Typically, it’s a three-year investment cycle. We’re probably on pace to be back in the market with the next fund in mid-2025,” he said.
Friday’s announcement is accompanied by the launch at COP 28 of a Brookfield-led Catalytic Transition Fund focused on decarbonisation in emerging markets. The new vehicle was inaugurated with a corner commitment of up to $1 billion from the equally new UAE-sponsored $30 billion Alterra Fund, looking to fund climate-related investments in the Global South.
For its Catalytic Transition Fund, Brookfield will keep the GP commitment to 10 percent.
Alterra also announced a commitment of $2 billion to Brookfield’s second Global Transition Fund, launched in May this year and targeting some $20 billion.
Brookfield’s focus is on digitalisation, decarbonisation and deglobalisation, as the company’s CEO of infrastructure, Sam Pollock, explained in an interview for Infrastructure Investor’s September issue: ”You have to step back and assess: where is all the capital needed for the next 10-30 years? And get in front of that tailwind. Getting in front of digitalisation and decarbonisation now obviously seems like a no-brainer, but not everyone could see that eight years ago and how important it was going to be…
“The trend towards deglobalisation probably accelerated during the previous US administration, when we saw protectionism starting to build up a bit more, and governments focused even more on where they sourced their goods. That really precipitated with the tensions with the two major economies – the US and China. I think we’re now in a 10- to 20-year period where countries will reshore or realign critical manufacturing and critical energy infrastructure.”
If Fund V is to follow in the return footsteps of its predecessors, then a net IRR of 11-14 percent should be expected against a targeted 10 percent net return.
“We tend to hold on to our investments longer than some others, and so that will naturally bring down your IRRs over time because you’re not taking advantage of those quick wins, but we benefit from a much-improved multiple of capital. I think our performance has been excellent,” Pollock said.
