In a recent Preqin survey, institutional investors provided their opinions on the key issues currently facing the infrastructure asset class. The highest proportion of investors surveyed (29%) are concerned about management fees and carry structures. Many investors believe infrastructure fees should emulate the risk/return profile of an infrastructure asset, characterized by a lower level of risk rewarded with a lower and more stable level of return.
Despite this investor sentiment, many infrastructure fund managers remain reliant on the 2/20 private equity fee structure. 50% of infrastructure funds currently raising capital or those closed with a 2009/2010 vintage charge a 2%+ management fee during the investment period, showing there is a clear discrepancy between what investors expect and what many fund managers are currently willing to accept in terms of fees.
In contrast, 50% of infrastructure fund managers are beginning to address this issue by charging a management fee lower than 2%. This shows that the industry is moving in the right direction with prominent private equity firms like KKR and Blackstone publicly lowering their management fee and carry to try and increase investor interest in their first infrastructure vehicles.
Going forward, fund managers will need to make concessions in order to attract investor commitments. This will include reducing the management fee and/or creating special structures to match investor expectations.
This blog is an excerpt from this month’s Infrastructure Spotlight feature article based on the findings of a recent Preqin survey of institutional infrastructure investors and an interview held with Henri Piganeau, a member of the management team for the Cube Infrastructure Fund, which recently closed on €1.1bn.
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