Why you shouldn't do Infra PE
If you have the choice of doing corporate PE vs infra PE, do not do infra PE. Corp PE and infra PE have the same hurdle rates, but infra PE returns are much lower, so your carry is much lower. Your investments are also constrained by ESG requirements, which, unlike corp PE, compresses your returns even more. Also, the culture and hours at infra PE firms are much worse than corp PE.
Let me know your thoughts.
If you're interested in infrastructure, then do infra PE. If you're interested in tech, then do tech PE. If you're interested in healthcare, then do healthcare PE. You will be most successful wherever you have genuine interest. It's also nice to not hate your work.
Most people who go into infra PE don't have the option of choosing corp PE. People in infra PE come from coverage groups which tend to pigeonhole them into infra PE (i.e., infra / energy IB, project finance banking) and infra PE is much more forgiving of people from nontraditional backgrounds. In other words, the compensation is commensurate with the lack of pedigree.
You sound insufferable
Probably one of the wisest comments on this forum. This always gets overlooked by "prestige, WLB, etc."
In general, the private equity industry is becoming more and more sector focused for investment professionals. Even if you're at a generalist firm, as you rise up, you will eventually have to carve out your own corner of the market somehow.
This take is so gd dumb and is written like a first grader learning how to structure arguments. Well fucking obviously infra PE has lower returns. You buy rock solid cash flow assets and let it ride for 5-10 years. This is like comparing real estate to to PE. Or high yield credit to IG credit. They’re different things with different risk profiles. You can make a ton of money in infra pe, just like any other industry if you are good at it
I just don't understand why anyone would choose infra PE over corp PE. Why work more hours for ~half the pay?
do you understand the concept of risk mate? You think everyone's corp PE fund is gonna hit 2x net MOI this next decade?
i dont think you have a sense of what infra comp is
Stop giving this guy time. I'm tired of listening to it
Excuse me sir but get your grass touching out of here
Some people genuinely enjoy infra - they are passionate about things like renewable energy and feel their work is making an impact on the world by financing these projects. If you are at a large fund, you will likely still earn more than enough cash comps. Sure, carry can be theoretically lower but I think the times of making $50-100m in corp PE has also gone given where the rates are. If you are comparing comps at mega infra shops e.g. GIP to mid market corp PE funds, it is really hard to say who gets more carry. Also, you should notice Infra is gaining more traction in this environment, similar to PC. A couple of large MF bought infra arms as they prepare for IPO - think why they need to diversify their asset base now? This also means infra probably has more growth headroom for someone to advance their careers.
https://www.reuters.com/markets/deals/cvc-capital-buy-dutch-firm-dif-ca… -> CVC buying Dutch infra firm
https://www.ft.com/content/4ff2c6a7-7e7b-4e55-9e33-bbc1067b849e -> GA buying Actis
For background, I work in a tech PE and have a few friends in infra. Despite everything I said, I would never go into infra as I am not interested in the space and I hate the ultra granular modelling in infra. But my friends are in infra (who are mostly VP level) all love it and they have no interest in going to corp PE do healthcare or tech deals. There is really no one thing better than other - you do what you love.
but... but... what if I saw myself doing Infra PE since I was 5 years old? What if I dream in my sleep about 40 pages Excels on DCFs forecasts for 30 years? What if instead of reading the adventures of Tom Sawyer I was reading project finance docs in 6th grade? Please don't tell me it's not worth it, it makes me sad :'((
Yeah what makes people want to go into infra IB or PE? I can’t imagine anyone being happy doing project finance or utilities - my roommate worked in that and he was constantly working on the most complex projects. He did not seem happy even though he was working in infra for years
I work in an infra focused fund and we target 20%+ base case IRR's on most underwrites, I assumed this was common in corp. PE funds too, am i wrong?
Mind if I send you a DM?
Can i send a DM?
Can I send a DM?
In my experience Infra PE while yes, lower overall returns on average as an asset class, usually higher absolute dollars + much more leverage can somewhat offset.
Hurdle doesn’t impact carry as long as you beat the hurdle… uneducated take
Returns impact carry. Infra PE has lower returns. Top decile buyout funds are returning >35%. Top decile infra returns >20%.
A better data point would be P50 with some consideration to return variance rather than just looking at top decile, this is cherry-picking.
Your point about carry is mistaken. You completely ignored his comment on hurdle rates.
Hurdles are commensurate to the risk-return weighting. Infra LPs typically have a different cost of capital for the asset class.
You sound incompetent; I expect you to earn very little in whatever sector you choose / end up in. I wouldn't concern yourself too much with your perceived compensation spread between fund management strategies / mandates.
Was pointing to the fact that the carry, in terms of absolute dollars, is larger on a $2B investment than a $200mm investment, all else equal. And infra tends to lend itself to bigger check sizes, generally speaking.
Was this for me? Fairly obvious and not sure how it relates to what I said. I was responding to the below from OP which is factually incorrect
“Corp PE and infra PE have the same hurdle rates, but infra PE returns are much lower, so your carry is much lower.”
Precisely. It’s all about gross profit at the end of the day when valuations carry against similar hurdles.
Lots of infra funds also have lower headcounts for a a similar AUM (less you can do with some assets operationally). Though don’t have the data to actually run any numbers on this, would imagine the carry pool is split between less people at many of the top infra funds mitigating the effects of a lower gross return.
I work in infra PE, have done so for several years and background was in generalist M&A/ECM.
- The OP is factually incorrect as many have pointed out, and I won't bother explaining that as others have already done so. Infantile take that is negative value for this forum.
- It's really not for everyone - yes, the modelling is very granular. HOWEVER, it is also very easy to understand if that makes sense - there are no complex customer cohorts to model etc., it is very, very simple for the most part. Here are your contracts, here is the term, here is the tariff, here is the guaranteed off-take etc. etc. Where it gets annoying is the weeds on structuring and debt, but honestly, once you do one debt copy-paste macro, you realise it is very simple.
- I am naturally a pessimistic investor and see the glass half empty. My personality lends itself heavily to this style of investing in heavily contracted businesses as a result - I simply cannot imagine underwriting an app, a SAAS company, etc. To me, that is all finger-in-the-air nonsense; I LOVE the fact that I can go and see the toll road we invested in, the wind farm, etc. and actually get the warm and fuzzies that what I do does have some positive impact (I do not work at Macquarie and did not poison the UK's water supply before you ask).
- At the large funds, comp is in line with corp buyout. at smaller/MM funds, there will be a slight discount. Carry is there and risk-adjusted, probably very close to peers in corporate buyout (lol at people who think every fund returns 2x in 5 years).
- Highly underrated but the personalities in infra PE are just so much more down to earth. You get ex developers, engineers etc., and not just the same insufferable hardos you get in other teams.
That said, I don't blame people for not going into it - like I would never want to do FIG, for example. Do what interests you, and you will likely perform better and the money will come.
Very well said. My experience is slightly different being on the corp dev side of a utility but this definitely captures my experience in the work I do and in my interactions with the PE side of the space
Would you say that with infra PE, the return profile is less volatile, hence your carry is more likely to be realized rather than getting a donut? I can see a more risk averse person naturally inclining towards infra PE or private credit over something like PE or growth equity.
Well seesh if money is all we care about why not work at a quant HF or do AI/machine learning? Why would you even do finance if you want to have the highest chance of maxing comp? You're telling me you'd choose to slog through IB for some years then get worked to death in the PE promised land for 300k when you could make 800k 4 years out of school as a top SWE. These threads are so pointless and sounds like a high schooler wrote it. Just do what you like man and the money should come.
Nothing beats corp PE compensation. Making 800k as a quant is only common if you have a PhD. So you'll make 800k at 32, which is less than what your counterparts make in PE. Corp PE >> Infra PE > quant > banking.
I know multiple non-PhDs that make that, and far far younger than 32. Quants make much more than you think
I think your post here suggests the narrow mindset of many people working in PE.. I also know several people in quant make more than their MF peers. The world is not just PE. That being said - I think most of us work in PE instead of doing quant in HF because we are literally not smart enough for that and not qualified (I can never get a PhD in maths or physics). I think PE is likely the best paying job for people with a normal to slightly above average intelligence level
Just go work in quant and machine learning would imply all of us are mathematical geniuses with superior intellectual horse power when in reality most of us are only above average intelligence but hard working (not talking about vs. the general population which is quite frankly incredibly dumb) and not wizards of the universe.
Fund size is larger and there are fewer people per fund than pretty much any other asset class. And as others have pointed out, there have been quite a few secondary / M&A txns in the infra PE space, so it’s a great asset class to be in.
The fund size thing is so real. BX and Brookfield can raise dozens of billions of dollars without breaking a sweat in infra while corp struggles in these environments to match the latest fund size. Fees get charged on AUM too, which people just conveniently forget when comparing to even UMM corp PE
Despite a lot of comments to the contrary, I personally feel this is valuable for someone who is primarily concerned with money and hours and does not have a desire to work in one sector or another. Sure, if you like infra PE go for it, but if you're primarily concerned with money and hours then this is good info to have. SB'd
Which demographic on this site seems to be focused on money and hours?
Is Infra PE mostly credit or credit-like investments? I've seen some of infra IC memos and the ones I've looked at were pitching debt instruments. Let me know if that's the case or not.
In some cases, yes, it’s credit or credit-like but depends on the fund. My fund has separate groups for infra credit vs. equity. The equity team is more akin to corp PE (carve-outs, buyouts, JVs with large corporates, etc.)
I am obviously biased since I work in PE but I have a lot of friends who do infra investing, both directly and at fund of funds. The infra investing space has always been a bit of an enigma for me. I think the main issue with the space is there really isn't any way to properly benchmark a fund and see if it has actually added any real value to your portfolio relative to public markets.
You have an infra fund that returned 7% net IRR - that could be a good outcome if you have a "core" fund or a bad outcome if you are a "value-add" fund. I have seen "core-plus" GPs subtly changing their marketing as performance dropped - "Oh yeah, our returns are likely to be lower than we marketed but it's all good since we took less risk that we initially anticipated, so "risk-adjusted", this is still a good outcome". Not to mention, it's super easy to find the same assets being held in core, core-plus and sometimes even value-add funds.
I do wonder how many infrastructure funds have actually added value on a net basis compared to an equivalent public benchmark. No one talks about this since infra funds are usually benchmarked to an incredibly easy CPI+x% (usually 3%-5%) benchmark even though most of the underlying assets in core-plus and value-add funds have little real CPI linkage. The LPs are also incentivized to keep the game going since their probability of achieving incentive comp is higher if returns are not benchmarked to public markets.
I just realized none of the above directly answered your questions - so here goes: yes, hurdles rates are the same, returns are generally but not always lower than PE (funds like EQT and Antin target PE-like returns) and carry generated per fund is also generally but not always lower than PE. A flagship Antin fund is obviously going to generate many multiples the carry generated by some random mid-market PE fund. Yes, infra investments are a little more constrained by ESG requirements than PE but no, it doesn't compress returns any more than it does in PE. Culture and hours are obviously firm dependent. Oh, and infra models really do suck and usually, the lower the returns (so core assets), the more its a nightmare to build and analyze the model. Modeling really is at another level in infra compared to PE.
Does infra typically exist in MF sized groups or are there a decent number of MM and LMM shops that focus on infra?
Much more of a heavy concentration in a few mega-sized funds because a lot of these big ugly safe assets are going to have massive EVs. Even club deals need big checks to be viable
Interesting, how common is it for consortiums to acquire assets in the infra space? Is that possible if you’re just buying a bunch of renewable energy power plants or something
I’ve always had the impression many groups that focus on infra are sweaty - are there any chill groups in this sector?
Considering how there’s only a few people who answered with good responses this entire time, I would assume most infra groups are indeed sweaty
Aren't most Infra PE funds no longer targeting the ultra core toll road/airport, high single to mid-teens returns, and looking at more megatrends like midstream, energy transition and digital? I thought I saw data center multiples are like 25x, but recent exits have realized 3-5x MOIC or 30-40% IRR.
IME data centres fall under real estate, not infra.
Have seen a number of large infra players in the data centre space (i.e., KKR/GIP in CONE), and while the line is somewhat blurred with real estate, the services provided and nature of the contracts often allow them to fall under the infra umbrella.
That was true few years ago. Not anymore.
Look at the number of transactions in the space:
- Data4: Bought by Brookfield
- Verne: Bought by Ardian
- Switch: Bought by IFM and DigitalBridge
- Ficolo: Bought by D9
- CyrusOne: Bought by GIP and KKR
- Vantage: Became such a beast that they are selling stakes in different countries
Those are a just a few small samples on top of my head and there are a number of processes ongoing at the moment, all being run by the Infra/TelCo teams. The multiples that I heard on some are eye watering (heard around 40.0x for Data4).
Does Blackrock buying GIP change anyone’s thoughts?
Found the disgruntled GIP employee lol. I’m sure Blackrock will still pay you good bro bro
So fucking accurate.
Bro one of the main ideas of infra PE is downside protection as the industry is very weakly correlated to macro trends (inflation etc.). They dont want to grow massively and do multiple expansions to get to a 3x MOM but are fine with a 10-20% IRR (depending on Core, Core+, Opportunistic).
Besides you cannot generalize working hours, this differs per fund.
Um infra IRRs are generally not 10-20%….
Lol, quick Preqin search will tell you otherwise. They’re squarely in that range with top funds achieving >20% gross
Well actually they do. Usually 50% or so comes from dividend payout and only 50% or so comes from exit but overall funds aim depending on strategy between 10-20%. Also if you talk to someone at the larger infra funds (MIRA, GIP and even KKR (yeah they are actually a strong player in infra now)), they all aim for a return between those numbers.
Also as member has pointed out correctly below, infra is very broad; Core usually lower (around 10%) vs Core+ or opportunistic aim for higher returns (up to 20%). In addition in funding rounds, Core funds aim at 12% or even higher. I agree some of them wont be able to achieve this return but this should give you a fairly accurate feeling of the industry.
Hope I’m not going too much of topic, in that case please correct me. I’m thinking about joining a Infra PE team at a pension fund (~15bn). Yes I’m actually really interested in infra haha. I’m wondering if joining a PE team at a pension fund will hurt my exit ops as pension funds are not that well respected by corporates in my believes. Also, there aren’t any infra PE shops here in the Benelux as far as I’m aware and I don’t know any European players as well but I assume there must be a couple. Hope you can enlighten me with some insight.
Infra PE firms are typically much larger in terms of AUM >> absolute value on carry. (Yes there are outliers)
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