What Are Infrastructure Funds

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What are infrastructure funds?

By Kelly DePonte, Probitas Partners

Infrastructure investing is a relatively new sector within institutional investors’ portfolios and has been growing dramatically over the last five years. Though a few of the largest and most sophisticated investors have devoted the necessary resources to develop direct investment programmes, most investors in the sector commit through professionally managed funds, much as they do in private equity and opportunistic real estate. Despite some similarities to private equity and real estate structures, at their heart, infrastructure investments are very different. Before discussing infrastructure funds in detail, it is necessary first to take an in-depth look at the infrastructure sector as a whole.

Defining institutional infrastructure investing

Infrastructure investing covers a wide range of different project types with different riskreturn profiles. These investment opportunities are capital-intensive and are either in heavily regulated industries (as with natural gas transmission) or are done under longterm concessions with public sector entities through public private partnerships (PPPs). Though most of the largest closed-end funds and publicly listed vehicles focused on infrastructure are diversified to some degree by project type and geography, it is useful to review in some detail the various sectors individually by project structure, industry sector and stage of development.

Project structure

In very broad terms there are two basic types of investment structures within the infrastructure sector relevant to institutional equity investors – PPPs and private investments.

Public private partnerships

Historically, governments around the world have shouldered the burden of infrastructure finance through a variety of public-financing structures, either with pay-as-you-go user fees or with taxes. However, stretched public finance capacities, together with recognised...