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IPE special report May 2018

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Investors critical of 'greedy' infrastructure managers, survey finds

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GLOBAL – Institutional investors pursuing infrastructure investments are increasingly concerned about the misalignment of interest with infrastructure fund managers, a new report has shown.

According to Preqin, the infrastructure sector showed the greatest level of dissatisfaction among the $5.5trn (€4.1trn) alternative asset industry. It said that allocations to alternatives were nonetheless set to grow "significantly" over the coming years, as institutional investors around the globe were willing to allocate more capital to private equity, real estate, infrastructure and hedge funds.

However, 48% of the institutional investors surveyed by Preqin felt that fund managers' and investors' interests were not properly aligned when it came to invest in the infrastructure asset class.

The majority of respondents – 76% – pointed to management fees as the area where alignment of interests most needed to be improved and complained about the current private equity-like fee structures in an asset class with very different return expectations.

As a result, even though 69% of respondents said they saw a change in infrastructure fund terms over the past 12 months in favour of the investor, investors still felt further work was needed to improve the situation.

One Belgium-based investment company that reported a decrease in confidence stated that the regulator was much more "unstable and untrustworthy", and considered infrastructure funds "too expensive and managers too greedy".

Infrastructure nonetheless remains the most promising asset class, according to Preqin, which stressed that it has the potential to see "significant" growth in the coming years with many investors interested in the diversification and long-term stable returns the asset class can provide.

Most investors believe their infrastructure portfolios have either met or exceeded expectations over the past 12 months.

Preqin went on to say that 63% of investors expect to commit more capital to infrastructure in the coming year than they did in the past 12 months.

"While investor allocations to infrastructure are typically smaller than for other alternative asset classes, 58% of respondents expect to increase their allocations to infrastructure in the longer term," Preqin said.

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