Survey: Infrastructure Investors Step Up Investment; Find PE Model Inappropriate

(August 18, 2010) — According to a recent Preqin survey, about 70% of institutional investors that invest in infrastructure plan to make additional investments during the next 12 months, up from 40% last October.

Meanwhile, the survey revealed that many feel it is unwise for managers of unlisted infrastructure funds to apply the private equity model in the fees they charge, as investors and infrastructure fund managers have been debating whether the management fees and fund carry structure of private equity are appropriate for the long lifetimes of infrastructure assets. According to the study, one respondent was quoted as saying “The fee structure is set up for an asset class capable of returning 20 percent, but expected infrastructure returns are much lower than that.”

Additionally, 73% of the institutional investors surveyed by the market research firm Preqin disagreed or strongly disagreed that the interests of the fund manager and investors are well aligned. These respondents argued that the long-term characteristics of infrastructure assets do not match the ten-year term of a traditional private equity fund. An additional quarter of investors argued that there needs to be greater interaction between investors and fund managers when making investment decisions.

In terms of geographic opportunity, 22% percent of respondents believe the greatest infrastructure investment opportunities are in North America, while 20% reported Western Europe and 19% stated emerging markets, with the remainder spread among other locations.

Preqin’s study was conducted in June and studied responses from 65 institutional investors around the world.