The US election is complicating investors’ hunt for infrastructure deals

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US investors are pouring money into funds financing infrastructure projects from wind farms to data centers, only to find their fund managers are worried they can’t sign attractive deals quickly.

A drop in infrastructure deal activity is being blamed on uncertainty over the outlook for green energy subsidies and tariffs ahead of a US presidential election that looks too close to call, according to market participants.

Fund-raising by infrastructure-focused asset managers has sprung to life, starting with the launch last December of a record $28 billion fund by Brookfield, ending a drought of nearly 18 months.

In the first half of 2024, North American infrastructure funds raised another $10 billion, compared with $4 billion in the same period last year, according to Preqin data. The third quarter is off to a strong start, with nearly $7 billion raised so far in July and August, compared to just $2.5 billion in the same period last year.

And the numbers are expected to rise further after rising equity markets have given pension funds and endowments the ability to increase their allocations to alternative, illiquid investments. Infrastructure funds are seen as a way to lock money into high-yielding assets before interest rates start to fall.

This month, the Los Angeles Fire and Police Pension Board approved reallocating 2 percent of its $31 billion infrastructure investment fund from commodities. Infrastructure “could provide the plan with higher expected returns during periods of stable and falling inflation and have lower correlation with public equities,” pension fund adviser RVK said in the meeting agenda.

The $274 billion New York Retirement System also said its funds have increased their exposure to infrastructure by as much as 2 percent since the end of last year.

The global energy transition away from fossil fuels is driving investor interest, making it the fastest-growing infrastructure subsector, according to Campbell Lutyens, another consultancy.

“We have at least 110 energy transition private funds in the market now trying to raise around $170 billion,” said Gordon Bajnai, chief executive of Campbell Lutyens. “This far exceeds any other areas of expertise such as data (centers) and transportation.”

But the actual flow of infrastructure deals this year has not grown to match the flows, and projects that have come to market this year have tended to be smaller. Total deal value remains well below the highs of 2021 and 2022. Despite being flush with cash, infrastructure fund managers are proving cautious.

Former President Donald Trump has declared his intention to dismantle much of the Biden administration’s Inflation Relief Act, which provides incentives for domestic industry and clean technology, if he is returned to the White House in November. He also promised to introduce new import tariffs.

“We can’t accurately cost a project, so we can’t value it,” said David Scaysbrook, co-founder of Quinbrook Infrastructure Partners, which raised $3 billion for its renewable energy fund earlier this month.

“We need to be more cautious in the next 12 months in terms of committing to projects. There is some stalling of momentum until we have more certainty around the costs.”

The looming election means more delayed deals or projects taking longer to come to market, said Mark Widmar, chief executive of First Solar, the largest U.S. solar company. “You’re going to be in this window with a lot of uncertainty for a period of time. It will be very disruptive to the industry.”

Some asset managers are banking on a surge in trading after Election Day in November, when the political makeup of the White House and Congress becomes clear.

Steven Meier, chief investment officer for the New York Retirement System, said if Republicans win, “there may be a rollback of some of the infrastructure initiatives,” but the long-term outlook remains positive.

“The demand and the need is there.”