In a survey by Preqin of institutional investors allocating to alternatives, 49% of investors in infrastructure funds said that their interests are not properly aligned with fund managers.
This number topped other alternative asset classes, as 36% of hedge fund investors thought their interests misaligned with managers, 23% of private equity investors felt that way, and only 28% of investors in real estate funds thought there was a disconnect.
While nearly half of infrastructure investors do not see an alignment in interests, this number remains at the same level it was in May 2011, although it’s a considerable jump from the 27% who felt that way in June 2010. Still, investors want to allocate to infrastructure, as 63% who already do invest in infrastructure funds plan to commit more capital over the next year, and 58% expect to commit more capital over the long term, which is a higher proportion than the other alternative asset classes.
Investors said that the top two areas where alignment of interest can be improved are management fees (73% chose this area) and the structure of performance fees (70% chose this area). That being said, 76% responded that management fee terms have improved over the last 12 months.
“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,” says Elliot Bradbrook, manager—infrastructure data at Preqin. “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.”
Infrastructure Investors See Misalignment of Interests with Fund Managers
In a survey by Preqin of institutional investors allocating to alternatives, 49% of investors in infrastructure funds said that their interests are not properly aligned with fund managers.
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