Nearly 49% of infrastructure investors surveyed by Preqin disagree or strongly disagree that fund managers’ and investors’ interests are properly aligned when it comes to fund terms and conditions, according to the company’s November edition of Infrastructure Spotlight research.
This proportion is significantly higher than for any other alternative asset class; in comparison, 36% of institutional investors in hedge funds, 33% of institutional investors in private equity and 28% of institutional investors in private real estate funds disagree that fund manager and investor interests are properly aligned.
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Nevertheless, 69% of infrastructure investors surveyed have seen a change in infrastructure fund terms in favour of investors over the last year, demonstrating that improvements have been made. The proportion of investors dissatisfied with the alignment of fund manager and investor interests has also decreased, from 73% of investors surveyed in June 2010 to 49% of investors surveyed in August 2013.
Other Key Facts:
- 73% of infrastructure investors surveyed by Preqin stated that the level of the management fee charged by fund managers is a key area where alignment of interests can be improved.
- Despite investor demands that fund managers move away from the traditional 2 and 20 private equity fee structure, which many argue is less suited to the lower risk-return profile of infrastructure assets, a significant 61% of 2012/2013 vintage infrastructure funds and those currently being marketed charge an investment period management fee of 2.0% or more.
Elliot Bradbrook, manager, Infrastructure Data, Preqin, said: "Many institutional investors surveyed by Preqin are dissatisfied with the terms currently offered by infrastructure fund managers, demonstrating that more needs to be done to improve the alignment of fund manager and investor interests when it comes to fees and other fund terms and conditions. Investors are increasingly unwilling to buy into the traditional 2 and 20 private equity fee structure when gaining exposure to lower risk-return profile infrastructure assets, and some fund managers are making concessions in this area to attract investor commitments. Although improvements have been made in recent years, it is vital that fund managers are able to effectively articulate the reasoning behind the fees being charged, and continue to consider the appropriate structure of the terms and conditions employed their funds in order to align interests effectively and achieve success in the competitive fundraising market."
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