Infrastructure separate accounts offer unique access to the infrastructure asset class as well as a better alignment of interest with GPs. Separate accounts, or mandates, awarded to GPs often provide a very specific, single-stranded investment strategy, be this in terms of industry focus or in terms of its preference for primary, debt or secondary market acquisitions. In addition, the single nature of a separate account means that a more tailored investment criteria is created to meet the specific needs of the investor.
The growth in prominence of infrastructure separate accounts can largely be credited to an LPs ability to tailor its investment strategy, with the GP enabling it to gain exposure to assets that specifically match their investment remit. For example, insurance companies and pension funds can utilize separate accounts as a way of sourcing opportunities that specifically suit their long-term investment aims and objectives. As such, 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, 72% focus on a single investment strategy rather than a mixture of primary, secondary or debt/mezzanine strategies. An example of a separate account currently being tracked by Preqin Infrastructure Online is the HUK Coburg/Golding Capital Partners Separate Account. This is a €300mn mandate managed by Golding Capital Partners, on behalf of German insurance company HUK Coburg. The mandate solely targets primary equity opportunities, in a range of core infrastructure industries such as energy, utilities and transportation on a global-basis.
Despite the bespoke nature of separate accounts, such mandates have significantly higher barriers to entry for LPs than traditional unlisted pooled funds as the LP is required to meet the capital requirements of investing in the infrastructure asset class. This can often mean much larger amounts of capital are needed. Furthermore, economies of scale which result from large sums of pooled investor capital in traditional unlisted funds are simply not present in a separate account. Separate accounts tend to be pursued by institutional investors, using the capital available to engage in sizeable investments. In fact, the median size of a separate account featured on Preqin’s Infrastructure Online is $465mn, which is significantly higher than a typical single fund commitment made by an LP. Therefore, those LPs which are actively considering separate accounts tend to have significantly higher assets under management than a typical investor in infrastructure, with an average of $60bn compared to the $40bn average for all investors in the asset class. While $40bn is still a significantly large figure, it is important to note that this figure encompasses a number of very-large, high-profile LPs and therefore the majority of institutional investors will have total asset figures that are much lower than this.
Although the traditional unlisted infrastructure fund is likely to remain the main route-to-market for infrastructure LPs in the future, the number of separate accounts created looks set to continue to grow as LPs look for a more structured, defined route to the asset class. However, as previously mentioned, separate accounts are likely to be preserved for larger institutional investors with larger sums of capital readily available.