The 100 largest institutional investors in infrastructure (by committed capital) invest in the asset class through a range of different routes to market. These institutions have invested an aggregate $204bn in infrastructure opportunities to date, via equity commitments to both unlisted and listed infrastructure funds, and direct investment strategies.
Although unlisted funds remain the primary route to market for the majority of infrastructure investors worldwide (both large and small), an increasing number of the largest institutions are now choosing to invest directly. Fee structures are beginning to improve, but most infrastructure fund managers still follow the traditional 2/20 private equity model. This causes friction between GPs and LPs that believe lower risk/return infrastructure assets warrant a lower and more realistic fee structure. As a result, larger institutions with the available resources to invest directly are beginning to bypass the fund manager in order to avoid paying expensive fees and to have more control over their investment portfolios. As such, 64% of the top 100 institutional investors invest in infrastructure through direct investments.
Despite this trend, direct investments are only a feasible option for a small proportion of the very largest and most experienced institutional investors, meaning smaller investors will continue to rely on third party fund managers to provide access to infrastructure assets in future. Large investors will continue to invest in infrastructure funds alongside other strategies, as long as these opportunities are cost effective and conducive to their investment strategy. 89% of the top 100 institutional investors in infrastructure currently invest through unlisted funds and just 23% invest in listed vehicles.
The preference for the different routes to market appears to shift according to investor size. When the top institutional investors in infrastructure are split into thirds, the preference for direct investment clearly reduces with the size of the investor - 94% of the top 33 investors have a preference for investing directly, while 71% of the mid-range group and just 21% of the final group make direct investments. In contrast, 97% of the final group look to invest in unlisted funds, which emphasises the importance of the unlisted fund model even for the majority of the top investors in the market.