Unlisted infrastructure funds Unlisted infrastructure funds, which fall under the private market umbrella, are pooled vehicles that allow investors to access portfolio companies (or underlying assets) that are not publicly available. These funds are generally only accessible by large institutional investors with significant capital, and are frequently structured as limited partnerships, involving a general partner (GP – the fund manager) and a number of limited partners (LP – the investors). GP’s aim to deliver appealing adjusted returns through superior deal sourcing, valuation techniques, due diligence on investments, and using ownership control and operational knowledge to drive value out of assets until exit. Unlisted funds are highly illiquid, which can be a source of both the illiquidity premium, as well as downside protection during risk-off market events (as can be seen on page 9). The lack of liquidity can allow portfolio managers to focus on assets with superior long-term risk returns, aligning themselves with the lengthier time horizons of their institutional client base. Whilst liquidity may be limited between the fund and the LP, an LP may look to sell the fund in the secondary market to another institutional investor. Investors must also consider other factors such as fees and the nature of returns that are specific to unlisted funds as part of their evaluation. Fees vary widely from manager to manager but are usually in the range of 1-2% annual management charge and a 10-20% performance (carry) fee. With a dramatic number of new funds competing for capital, fees have been under pressure. Capital commitments are usually drawn down by the fund manager over the first three to five years of the life of a fund as a manager sources and executes investable opportunities. Distributions are later returned to investors as the fund matures, resulting in a J-curve cash flow (and return) profile. According to Preqin, there are approximately 181 unlisted funds looking to raise a combined $115bn in 2017. The actual amount raised is typically far lower than the target however; last year only 52 funds closed, and between them raised a total of $52bn, around $70bn under target. Source: Preqin Unlisted funds: Open vs closed ended? Within the unlisted space it’s important to distinguish between open-ended funds and closed-ended funds. Whilst closed-ended unlisted funds have historically been the preferred vehicle for accessing
Unlisted infrastructure funds Unlisted infrastructure funds, which fall under the private market umbrella, are pooled vehicles that allow investors to access portfolio companies (or underlying assets) that are not publicly available. These funds are generally only accessible by large institutional investors with significant capital, and are frequently structured as limited partnerships, involving a general partner (GP – the fund manager) and a number of limited partners (LP – the investors). GP’s aim to deliver appealing returns through superior deal sourcing, valuation techniques, due diligence on investments, and using ownership control and operational knowledge to drive value out of assets until exit. Unlisted funds are highly illiquid, which can be a source of both the illiquidity premium, as well as downside protection during risk-off market events (as can be seen on page 9). The lack of liquidity can allow portfolio managers to focus on assets with superior long-term risk adjusted returns, aligning themselves with the lengthier time horizons of their institutional client base. Whilst liquidity may be limited between the fund and the LP, an LP may look to sell the fund in the secondary market to another institutional investor. Investors must also consider other factors such as fees and the nature of returns that are specific to unlisted funds as part of their evaluation. Fees vary widely from manager to manager but are usually in the range of 1-2% annual management charge and a 10-20% performance (carry) fee. With a dramatic number of new funds competing for capital, fees have been under pressure. Capital commitments are usually drawn down by the fund manager over the first three to five years of the life of a fund as a manager sources and executes investable opportunities. Distributions are later returned to investors as the fund matures, resulting in a J-curve cash flow (and return) profile. According to Preqin, there are approximately 181 unlisted funds looking to raise a combined $115bn in 2017. The actual amount raised is typically far lower than the target however; last year only 52 funds closed, and between them raised a total of $52bn, around $70bn under target. Source: Preqin Unlisted funds: Open vs closed ended? Within the unlisted space it’s important to distinguish between open-ended funds and closed-ended funds. Whilst closed-ended unlisted funds have historically been the preferred vehicle for accessing