Infrastructure separate accounts offer LPs bespoke access to the infrastructure asset class as well as better alignment of interest with GPs. Separate accounts, or mandates, awarded to GPs will often focus on one specific investment strategy, such as exposure to infrastructure debt or secondary market acquisitions. In addition, the single nature of a separate account means a more tailored investment solution to meet specific needs. Preqin Infrastructure Online is currently tracking 15 infrastructure separate accounts, totalling $7.1bn in investor capital.
The primary advantage of a separate account is that LPs can formulate a tailored strategy with the GP providing exposure to assets that specifically match their requirements. For example, insurance companies and pension funds can utilize separate accounts to acquire infrastructure assets which are structured and sourced to specifically match the long-term liabilities of these LPs. As a result, LP and GP interests are often more aligned given the close-quarter working environments that separate accounts foster. Of the separate accounts Preqin is currently tracking, 67% focus on a single investment strategy rather than a mixture of primary, secondary, or debt/mezzanine strategies.
Despite the bespoke nature of separate accounts, these mandates have higher barriers to entry for LPs than traditional unlisted pooled funds as the LP must be large enough to meet the high capital requirements of investing in the infrastructure asset class. In addition, economies of scale that are present with the pooling of investor capital do not occur in a separate account. Separate accounts, therefore, tend to be pursued by institutional investors with the capital available to engage in sizeable investments. The median size of a separate account featured on Preqin’s Infrastructure Online database is $200mn, which is significantly higher than a typical single fund commitment made by an LP. Those LPs which are actively considering separate accounts have, on average, significantly higher assets under management than a typical investor in infrastructure, with an average of $92bn compared to the $40bn average for all investors in the asset class.
Although the traditional unlisted infrastructure fund is likely to remain the primary route to market for infrastructure LPs in future, the number of separate accounts created may grow going forward as LPs look for more structured access to the asset class. However, separate accounts and mandates will continue to be the preserve of larger institutional investors due to the resources required to access these structures.