The Future of the Private Equity Fund Model in Infrastructure

by Elliot Bradbrook

  • 24 Aug 2010
  • INF

Over 50% of investors that responded to our recent survey believe the private equity model will be utilized in the infrastructure asset class going forward, although this is dependent on the resolution of key issues such as fund and fee structures. Of those investors that believe the private equity fund model will not be used in the future, almost half think it will be replaced by direct investment, although this will limit the level of exposure smaller investors are able to gain to infrastructure assets.

One respondent believes that the fund model used will depend on the type of infrastructure fund being raised, stating: “I do [believe the private equity model has a long-term future in the asset class] but core strategies might be best accessed through open-ended funds, while opportunistic infrastructure might be best in a private equity structure. Direct investments are the best way to access the asset class, but are not a viable option for the majority of investors.” In this case, an option could be to tailor fund structures based on the type of infrastructure assets being targeted.

Similarly, another investor suggested that fund structures could be tailored to individual investors in the future as well as to certain asset types, saying: “More customized structures for smaller groups of investors may be a likely avenue, including some advanced structures for public private partnerships (PPPs).”

On the whole, investors believe that the private equity model will continue to be used in infrastructure investment but must be adapted to fit the needs and demands of both fund managers and investors. Investors make infrastructure investments for a number of reasons, such as diversification, to act as a hedge against inflation and because of the potential for stable long-term returns. Therefore fund managers must relate to these demands when formulating their fund and fee structures.

This blog is an excerpt from this month’s Infrastructure Spotlight, based on the findings of our recent survey of institutional infrastructure investors.

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