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Fees prompt infrastructure investors to go direct

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EUROPE – Institutional investors are increasingly looking for direct or co-investments in infrastructure as they have become more cautious about private equity fee structures since the onset of the global financial crisis, according to a study by Preqin.

Preqin said concerns over the use of private equity fee structures in infrastructure had forced institutional investors to find new ways of gaining exposure to the asset class.

While 36% of the investors surveyed currently invest directly in the asset class, and 32% make co-investments, these routes to market have the potential to grow, with 44% planning to invest directly and 45% seeking to make co-investments.

However, the report also showed that infrastructure funds remained the primary way of gaining exposure to infrastructure assets for the majority of investors, with 72% of respondents using this approach.

In its report, Preqin said: "It is unlikely that the private equity fund model used by unlisted infrastructure funds will change drastically in future, though infrastructure fund/fee structures will continue to be adapted to suit the risk profile of specific assets."

In spite of the concern voiced by the institutional investor community over the fees structure, the confidence in infrastructure remained strong last year, with many investors looking to increase their exposure to the asset class, Preqin said.

Discussing the infrastructure outlook for 2013, it added that none of the surveyed investors was planning to remove infrastructure from their portfolios in future.

The survey instead established that 58% would be likely to increase their allocation to the asset class over the next 12 to 24 months, with 58% of respondents expecting to increase their allocation and 38% planning to maintain their level of exposure.

In the long term, the outlook is particularly positive, with 62% of investors expecting to increase their exposure to the infrastructure asset class, and a further 36% aiming to maintain their current allocation.

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