More institutional investors might invest in infrastructure if there were more longer-lived investment structures, such as open-end funds invested in stable projects, consultants say.
Investors like the liquidity and more stable, income-producing portfolios contained in open-end funds.
But most commingled infrastructure funds are closed-end, mainly because they are easier to manage. Despite the demand, very few new global open-end funds have been launched. The one open-end infrastructure fund launched this year is sponsored by Fortress Investment Group and focuses on investing in Japan.
Some closed-end funds, however, are taking on a few of the characteristics of open-end funds to attract investors.
The $184.8 billion California State Teachers' Retirement System's second infrastructure investment, in 2012, was an open-end fund, said Diloshini Seneviratne, a portfolio manager at CalSTRS, West Sacramento. Still, the pension fund is “more heavyweight with closed-end funds,” Ms. Seneviratne said.
“Open-end is better for investors like us, who are looking for long-term investments. ... Open-end funds have more liquidity than closed-end funds,” Ms. Seneviratne said. “If you don't like what you see you can come out of it faster.”
Infrastructure fundraising for closed-end funds has been on a slow but steady upward trajectory in recent years. In the first six months of this year, 10 closed-end infrastructure funds closed, raising a total of $17.5 billion, according to London-based alternative investment research firm Preqin. By comparison, in all of 2013, 58 funds raised $40.7 billion, up from 50 funds that closed on $29 billion in 2012.
There were 149 funds in the market targeting a total of $90 billion as of July 1.
Brad Morrow, head of research in the Americas based in the New York office of Towers Watson & Co., said: “Infrastructure is a better fit with long-term open-end funds, where managers are not selling in five or six years. If there were more open-end funds there would be interest. ... The limited choice of maybe five (global funds) makes it difficult for some investors.”