Fee structures may render infrastructure unattractive
At the same time as some politicians canvass mandated infrastructure investment, new research from Watson Wyatt has revealed that high fees are acting as a deterrent.
Watson Wyatt’s head of portfolio construction and diversity in Australia, Ross Barry, said that while infrastructure recommended itself as a natural diversifier for institutional investors, many infrastructure funds would be of very little interest until they offered more attractive fees structures.
He said Watson Wyatt’s research into infrastructure funds revealed that many were structured as private equity-type vehicles with fee scales to match, and were housed within complex structures.
He said there were a number of answers to these flaws, including moving to fees based on invested capital, management fees which reflect the budgeted cost of running a fund, and the introduction of a single management fee.
Barry said that the structures currently predominating the infrastructure arena were obviously a good deal for infrastructure managers, but not necessarily for their investors.
“While we strongly believe in fair compensation, these fee structures are currently too high for the value they deliver, particularly in a lower-return environment,” he said.
AUTHOR
Mike Taylor
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