Infrastructure investments refer to putting money into long-term capital assets like roads, bridges, airports and utilities. Infrastructure funds allow investors to gain exposure to these assets while diversifying risks. When evaluating infrastructure funds, investors should look at factors like management fees, projected returns, risks, investment strategy and fund focus. By understanding these key factors, investors can make informed decisions on which infrastructure funds best fit their investment objectives and risk tolerance.
Management fees significantly impact net returns
Infrastructure funds typically charge management fees in the 1-2% range, which can eat into investor returns over time. Larger funds can negotiate lower fees due to economies of scale. Investors should compare fee structures across similar funds to ascertain if they are competitive. In some cases, performance fees may also be charged if the fund exceeds targeted returns.
Focus on risk-return profile alignment with goals
Infrastructure funds can generate stable cash flows but may carry risks like political/regulatory changes, construction delays, high leverage. Investors should evaluate if the fund’s expected returns sufficiently compensate for the risks taken on. Conservative investors may prefer lower risk brownfield projects while those seeking higher returns may opt for higher risk greenfield development.
Assess investment strategy and fund focus
Infrastructure funds vary in their geographic focus and asset types. Some funds focus on mature assets in developed markets while others target emerging market growth. Different asset class exposure like utilities, renewables, transportation and social infrastructure also carry varied risk-return profiles. Investors should pick funds aligned with their desired strategy.
Understand projected returns of funds
Infrastructure funds target returns in the 8-12% range but realized returns depend on asset selection and economic cycles. Investors should review projected returns in light of historical performance. Return drivers like concession length, leverage use and equity sponsors should also be evaluated.
Compare against similar alternative investments
Before selecting infrastructure funds, investors may also want to evaluate metrics like projected returns, volatility, diversification benefits relative to other alternatives like real estate, private equity or hedge funds. This enables determining if infrastructure funds help enhance overall portfolio construction.
Infrastructure funds can provide portfolio diversification but returns and risks can vary significantly based on strategy, fees and asset focus. Investors should carefully assess funds based on their individual objectives to make informed investment decisions.