Goldman Scaling Back Second Infrastructure Fund – Sources

Goldman Sachs Group has cut the $7.5 billion fundraising target for its second infrastructure fund by more than half after failing to secure enough commitments, people familiar with the matter said.

The investment bank has been seeking money for the fund, dubbed Goldman Sachs Infrastructure Partners II, for two years and is working towards final close having reached the time limit allowed under its private placement rules, sources said.

A Goldman Sachs spokeswoman declined to comment.

Global infrastructure fundraising dropped by more than half in 2009 from 2008 as investors moved into more liquid assets. At the same time, increased competition for investors’ money has exerted pressure on fees.

“Goldman has had to try to explain to its limited partners where the deals will be coming from,” said a source at a Dutch pension fund, speaking on condition of anonymity because details of the fundraising are private.

A second source added that, in order to placate concerns, the fund had suggested that a management fee would only start accruing after the fund has clinched a deal.

The number of infrastructure deals completed by unlisted infrastructure funds like this one dropped in 2009 to the lowest level since 2005 as fewer, more expensive assets came to the market, and debt financing became harder to secure.

The second fund has a mandate to invest in transport infrastructure, such as toll roads, airports and ports, as well as regulated assets in the gas, water and power sectors in North America and Europe. It is aimed at large institutional investors such as insurance companies and pension funds with commitments in the 10s of millions of dollars.

It has been actively scouring Europe for deals, making attempts to acquire the power grids of E.ON and Vattenfall that went up for sale in Germany as well as Veolia’s British water unit.]

Goldman’s first $6.5 billion infrastructure fund closed in 2006 and owns stakes in Associated British Ports, US port operator Carrix, Texan utility TXU — now Energy Future Holdings — and Mexican toll roads.

Infrastructure has emerged as a distinct asset class in recent years, with banks such as JPMorgan, Citi, Macquarie and Morgan Stanley, and buyout firms such as Kohlberg Kravis Roberts & Co. and The Blackstone Group sponsoring funds.

(By Greg Roumeliotis, European Infrastructure Correspondent)