Infrastructure has become a cornerstone of US investor portfolios, growing rapidly over recent years (26% CAGR since 1999). Institutional investors now allocate an average of ~5% of their portfolios to the segment, a significant increase from 2-3% a decade ago.
In contrast, the European landscape is less developed with an average infrastructure allocation of only ~4% and is poised for substantial growth. This presents a prime opportunity for US-based managers.
Key Advantages of the European Market for US Funds:
Untapped Investor Base: Many US GPs have limited exposure to the European LP landscape, leaving a significant portion of potential investors untapped.
Strong Investor Demand: European investors' growing appetite for Infrastructure, with allocations expected to increase from 4% today to 7-8% by 2028, offers a compelling opportunity.
At Quest Fund Placement, we bring over two decades of expertise to help GPs access unique pools of private capital in the mid-market - our core domain.
Why the US Mid-Market is increasingly attractive for European Investors
Larger Opportunity Set: Mid-market funds account for ~75% of total deal flow, offering a broad range of opportunities. Last year, funds targeting mid-sized assets increased by 31%, illustrating the growing demand for exposure.
Attractive Entry Valuations: Lower competition for deals in the mid-market helps to keep entry valuation multiples subdued, driving returns. According to Hamilton Lane, over the last 5-10 years Infrastructure deals in the mid-market space have come at an average (23)% discount to large and mega-cap transaction multiples.
Differentiated Value Creation: Mid-market assets typically offer better growth and de-risking opportunities. The relative benefit from first time capital injections and bolt-ons is higher for assets that are smaller. Secondary activity is also more enabled across larger pools of potential buyers.
Long-Term Tailwinds Support Expectations for a Recovery in Fundraising
Despite challenges over the past two years, the long-term outlook for Infrastructure remains strong – investor allocations are expected to increase. Preqin projects Global Infrastructure fundraising to recover to $113bn in 2024, driven by:
Energy Transition: The global shift towards renewable energy has driven significant momentum, with investments in energy storage, hydrogen projects, and essential grid upgrades. Renewable Energy remains the most active Infrastructure sub-sector (55% of total volumes)
Unprecedented Investor Choice: The variety of strategies available — from Core to Value-add and Opportunistic — has never been greater. This diversity allows investors to satisfy a wide range of investment objectives and risk appetites
The decrease in closed Infrastructure funds between 2021 and 2024 (~65% annualised) also suggests fundraising could rebound within the next 18 months as managers need to return to the market. The role of the Placement Agent, in terms of finding differentiated pockets of demand, is more important than ever in this context.
Why Quest?
Quest Fund Placement is uniquely positioned to assist US GPs in navigating the European market. As a trusted provider of fundraising services, we offer:
Deep European Network: We have cultivated strong relationships with a diverse range of European LPs, including pension funds, insurance companies, and family offices. Our founder James Coleman is one of the most experienced private capital fundraising experts for the mid-market in Europe.
Proven Track Record: With ~€1.5bn raised annually on average, our business model generates significant investment flows for our clients. Quest has also raised several Impact funds, with significant cross-over demand for PE-like Infrastructure strategies like Value-add and Opportunistic.
Mid-Market Expertise: Our focus on the mid-market segment aligns perfectly with the opportunities presented by the European investor landscape for US Infrastructure GPs.
By partnering with Quest, US GPs can unlock the significant demand potential of the European mid-market.