• Trio of large cap GPs closing EM funds as LP appetite grows

 

Brookfield has had a long history of investing in infrastructure in the emerging markets (EM). Back in 1899, William Mackenzie and Frederick Stark Pearson founded the São Paulo Tramway, Light and Power Company in Brazil with capital raised from the Toronto Stock Exchange. The utility later rebranded as Brascan before being renamed in 2005 as Brookfield Asset Management. Brookfield has been investing in Brazil and elsewhere in the developing world ever since, including via its infrastructure strategies.

Some infrastructure funds such as Actis and AP Moller Capital have been investing in EM – developing nations that are transitioning towards becoming developed markets by increasing their trade and industrialisation – for as long as they have been in existence. Several larger scale GPs have done the same, including I Squared Capital, which has invested in developed as well as advanced markets since its launch 14 years ago.

Yet some of the largest managers – including Brookfield, Copenhagen Infrastructure Partners as well as I Squared – only began raising specialist funds focused on EM around five years ago, triggered largely by LPs’ search for higher returns beyond crowded developed markets and, more recently, by shifting energy transition priorities across the global economy.

These efforts are now bearing fruit with Copenhagen Infrastructure Partners hitting a USD 3bn final close in August for its renewables focused Growth Markets Fund II (GMF II) fund, three times more than its predecessor, New Markets Fund I, which closed in December 2019. Also, Brookfield’s EM focused Catalytic Transition Fund is expected to reach a USD 5bn final close in October, while I Squared meanwhile is due to shortly close its Growth Markets Fund II (GMF II) at some USD 3bn.

Clear drivers

A clear driver has been growing institutional appetite for EM funds. This is exemplified by ALTÉRRA, a climate-focused investment manager headquartered in Abu Dhabi, which has invested USD 1bn in Brookfield’s EM fund as well as EM strategies managed by BlackRock and TPG Rise Climate. ALTÉRRA hopes to deploy USD 30bn into climate transition funds by the end of this decade.

ALTÉRRA has also committed capital to CIP’s Growth Markets Fund II (GMF II), representing a “broadening and diversifying” of the Scandinavian’s LP base from its Northern European roots, said Niels Holst, a partner and co-head of the GMF strategy.

CIP’s growth fund, which has committed USD 1.6bn across projects in Chile, India, Mexico, the Philippines and Romania, has also attracted capital from ultra high net worth family offices and Asian institutions.

“As LPs have become more sophisticated and sought diversify their exposure, they tend to pick up assets in growth markets,” said I Squared co-founder Gautam Bhandari, adding LPs in its developing markets fund include the Asia development Bank, the IFC  and the Asian Infrastructure Investment Bank.

LP appetite has largely been driven by “demand” for fund capital from EM nations, said Karim Radwan, a partner at ALTÉRRA.

“Emerging markets are growing, their energy needs are increasing, and significant new infrastructure is required to support that growth,” Radwan said.

The “demand for energy security and affordable energy” in EM is “strengthening the case for renewables and supporting infrastructure”, he added.

Holst said “despite tariffs”, the “growth and momentum and demand, frankly, for power in these middle-income countries has just been very strong, and hasn’t really been impacted by that. I think that’s been a very strong driver”.

The pipeline remains strong, said Radwan, particularly in India, Brazil and increasingly Southeast Asian markets including Indonesia, Malaysia and Vietnam.

India remains the world’s fastest-growing major economy, driven by government infrastructure spending, as well as strong domestic consumption, rising investment and expanding services and manufacturing sectors, according to the International Monetary Fund (IMF).

GDP growth is estimated at around 6-7% annually, significantly above the global average.

Brazil is also showing strong growth, with GDP increasing on average around 3% each year between 2022 and 2024, supported by strong household consumption, government stimulus measures, record agricultural production and expanding oil exports.

Aberdeen estimated last year that USD 43trn would be needed through to 2050 to bridge the infrastructure gap for EMs.

LPs are also increasingly attracted to the higher returns offered by EM funds.

Karim Radwan said “emerging-market infrastructure can offer a return premium relative to comparable opportunities in European and North American markets.  This reflects “market-specific risks, as well as perceived risks and historically lower institutional appetite,” he added.

Indeed, performance for some at least looks strong. Gross IRRs for I Squared’s 2021 vintage Growth Markets I fund are around 25%, sources said. I Squared declined to comment.

CIP’s Growth Markets Fund II fund targets net returns in the mid-teens, which is in line with the average return target of EM funds, according to Infralogic data.

Holst said GMF II aims to capture returns at around 300 to 400 bps higher than CIP’s flagship strategies.

Risk management

GPs have also got better at managing risk. Gautam Bhandari acknowledges that after the global financial crisis in 2009-2010 funds in “growth markets didn’t do well”, adding it was “a lot to do with local partners and governance issues”.

I Squared “learnt a lot from those early experiences in India”, including the need for “governance rights and control rights”, added Bhandari.

One example of managing risks is its Indian utility THINK Gas, a sprawling gas network spanning 10 states it set up in 2018 before adding to it another company that it acquired during the pandemic called AG&P. As well as showing its strategic route of establishing its own business to retain control, it also brought in partners to help fund its growth, in this case Japanese utility Osaka Gas and the Japan Bank for International Cooperation.

Different strategies have therefore appeared along the way, partly to manage such risks. CIP’s EM strategy focused on “high growth” markets across Asia, Eastern Europe and Latin America.

I Squared’s strategy, dubbed growth rather than emerging markets, targets fast growing markets including India, Indonesia and the Philippines.

But it also targets developed economies including South Korea, Japan and Singapore, while its second growth markets fund added Australia as a target geography because of its ties to Asian economies.

I Squared’s first growth markets fund invested in Scotland-headquartered temporary power supplier Aggreko, in part because it invests in emerging economies as well as the US and Europe.

But will emerging markets funds keep growing? Currently the sector is small. A recent survey by investment consultant bfinance of 40 global LPs, shared with Infralogic, shows that just 4% of the surveyed LPs report being focused on emerging markets versus 27% on North America and 42% on Europe.

EM infra funds* factsheet
Average target returns (%):	14 (based on available data)
Closed funds:	33
Active funds:	18
Average target size (USD m):	1395
Average final close (USD m):	978
Managers active:	33
*European and North American managers only Source: Infralogic

But LP appetite is clearly on the rise. ALTÉRRA has deployed just USD 6.5bn of the USD 30bn it has allocated for climate transition investment, with the rest to be deployed by 2030.

Radwan expects capital flow to EM funds to rise. “Over time, successful deployment and exits can create a flywheel that brings progressively larger pools of global capital into the market, deepening the ecosystem and expanding the opportunity set for institutional investors,” he said.

More capital might flow to the sector also as managers further prove their credentials by selling assets.

As more “large-scale institutional managers deploy capital at scale, they help build the broader investment ecosystem and create a bridge between different pools of capital”, said Radwan.

I Squared’s debut fund has a low distributed to paid-in capital, sources said. But it is early days given the fund’s investment period ended only three years ago. It also has only just begun making exits from its first growth market fund, including its Indian smart meter platform Polaris and Indian road business, Cube Highways Trust, which listed on India’s National Stock Exchange last month.

I Squared across all of its funds has deployed some USD 7.5bn into emerging markets and exited some USD 4bn, with high teen returns and two times money multiple, the source said.

In tandem, mid-market and large managers’ EM funds sizes have generally increased with fund targets growing in recent years to between USD 3-5bn, up from hundreds of millions targeted by earlier vintages, according to Infralogic analysis of current and historic EM funds.

This is based on analysis of some 50 EM equity funds managed by around 30 European and US funds including AllianzGI, BlackRock, TPG Rise Climate, Climate Fund Managers and Helios Investment Partners.

Patchy growth

Yet growth might be patchy. In Brazil a record USD 16bn of transactions were backed by infrastructure funds in 2022, including USD 2.7bn from Stonepeak and AustralianSuper for the acquisition of Lumen Technologies’ Latin American fibre business.

But after falling 60% year-on-year in 2023, investment has not been as strong, at just over USD 9bn last year amidst higher interest rates and inflation. The government is progressing sweeping tax reforms which are expected to support longer-term growth.

Thailand, often billed as one of several Asian tigers, faces deflationary pressures caused by high state debt, an ageing society and low consumer spending has led some to argue that it is at risk of Japanification, a prolonged period of low inflation and low growth.

Also, as with much of fundraising, the pace has been relatively slow. CIP spent 32 months fundraising for GMF II while its first fund in the sector closed in just nine months.

Holst attributed this partly to the policy shifts in the US last year after President Trump took office for a second term, which slowed momentum after a strong start.

But he added this policy landscape also drove renewed interest in growth markets towards the end of the fundraise, after investors had formed views on “where the world is going”.

I Squared’s second growth fund hit a first close in around April this year at some USD 2bn having launched in the spring of 2025, a roughly similar length of time it took to raise for its first fund.

Meanwhile GIP’s fundraise for its first EM vehicle, Emerging Markets Fund I (EMF I), took 48 months, according to Infralogic data, marking the longest fundraising period of the largest EM funds. GIP also raised USD 2.1bn versus a USD 5bn target for the first fund. The manager’s second EM fund that launched fundraising at the end of last year has secured over USD 1bn of capital to date and is also targeting USD 5bn.

Not all funds have had success. Of the 10 largest EM funds, 40% hit final close below the expected target, according to Infralogic data, although this is roughly in line with the picture across infrastructure funds.

Some larger infrastructure managers have yet to launch EM strategies, including IFM Investors, JP Morgan Asset Management, Blackstone and Nuveen. Getting comfortable with emerging markets takes time. Brookfield cautiously spent time with boots on the ground in India before going on to spend a decade ploughing capital via its catalytic fund and flagship infrastructure funds in roads, renewables and telecoms in the country.

There have been scandals along the way, such as the fraud case surrounding Azure Power Global Limited and La Caisse. CIP scaled back its offshore wind ambitions in Vietnam, in part due to a lack of regulatory clarity.

But increasing institutional appetite and funds having had time to manage EM risks means fundraising looks set to remain buoyant.

[Editor’s Note: The article has been amended to clarify ALTÉRRA’s climate transition investment strategy.]

Largest EM-focused infrastructure and energy funds
Name	Manager	Geography	Size (USD m)	Target size (USD m)	Fund vintage	Status	Date	Launched	Fundraising period (months)
Actis Energy Fund 5	Actis	Africa, Asia, Eastern Europe, Latin America	4700	4000	2020	Final Close	14 Oct 2021	Sep-19	25
Brookfield Catalytic Transition Fund	Brookfield	Asia, Latin America, Eastern Europe, Middle East	4000	5000	2024	First Close	26 Nov 2025	15 Apr 2024	28
Copenhagen Infrastructure Growth Markets Fund II (CI GMF II)	Copenhagen Infrastructure Partners (CIP)	Africa, Asia, Eastern Europe, Latin America	3000	3000	2025	Final Close	14 Aug 2026	4 Dec 2023	32
Actis Energy 4	Actis	Africa, Asia, Latin America	2750	2000	2017	Final Close	6 Mar 2017	9 Mar 2016	12
Global Infrastructure Partners (GIP) Emerging Markets Fund I	BlackRock	Asia, Latin America	2100	5000	2022	Final Close	5 Mar 2024	31 Mar 2020	48
ISQ Growth Markets Infrastructure Fund	I Squared Capital	Asia, Latin America	2000	2500	2021	Final Close	1 Dec 2023	Dec-20	36
ISQ Growth Markets Infrastructure Fund II	I Squared Capital	Asia, Oceania, Latin America	2000	3000	2026	First Close	29 Apr 2026	15 Jul 2024	25
Actis Long Life Infrastructure Fund 2	Actis	Africa. Asia, Latin America	1700	2500	2024	Final Close	13 May 2025	9 Nov 2022	30
Actis Long Life Infrastructure Fund	Actis	Africa. Asia, Latin America	1230	1500	2017	Final Close	14 Aug 2019	Oct-17	22
IFC Global Infrastructure Fund	IFC Asset Management	Africa, Asia, Eastern Europe, Latin America	1200	1000	2013	Final Close	18 Oct 2013	3 Jan 2013	9
Source: Infralogic