Infrastructure: Lost in Translation?

by Elliot Bradbrook

  • 17 Aug 2010
  • INF

In June 2010, Preqin surveyed institutional infrastructure investors from around the world to find out investor sentiment towards the key issues facing the asset class.

Almost 75% of investors surveyed disagreed or strongly disagreed that the interests of investors and fund managers are properly aligned.  Many investors highlighted the discrepancy between the risk/return profile of infrastructure assets and the level of management fees charged by fund managers utilizing the private equity fund model.  Others suggested that there is a fundamental difference between the reasons why investors look to gain exposure to infrastructure assets (such as for long-term, stable yield) and the profit-orientated aims of fund managers when raising an infrastructure fund.

Management fees and carry structures were each highlighted by 72% of investors as areas for improvement. This response also stems from the differences between infrastructure and private equity, with fund managers expecting to garner the same level of returns from an infrastructure asset as a private equity company.  One investor stated: “The fee structure is set up for an asset class capable of returning 20%, but expected [infrastructure] returns are much lower than that.”

Aside from management fees and carry, investors also highlighted several other issues that need to be resolved to improve alignment.  53% of investors take issue with having to pay fees on capital that has not yet been invested, while 45% think fund managers need to address their level of commitment to their own funds.  25% of investors surveyed stated that there needs to be greater interaction between investors and fund managers when making investment decisions.

This blog is an excerpt from this month’s Infrastructure Spotlight, based on the findings of our recent survey of institutional infrastructure investors.  To view the entire research report, please click here.

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