PFA is keen to increase its exposure to infrastructure but would prefer managers to invest ’selectively’
Denmark’s largest corporate pension provider PFA is grappling with what it sees as an inherent conflict of interest when committing capital to infrastructure fund managers.
Speaking at the IPE Conference in Copenhagen last week, head of alternatives Peter Tind Larsen raised concerns about how general partners are incentivised to call on capital “irrespective of valuations”.
The €77bn institutional investor is keen to increase its exposure to infrastructure but would prefer managers to invest “selectively” over four-year periods. However, infrastructure fund managers, which today operate in an increasingly competitive and highly-priced market, naturally stand to benefit from “an upside on our fees” when deploying committed capital Tind Larsen said.
This particular conflict of interest gives PFA a “headache”, he said.
Speaking separately to IPE Real Assets, Tind Larson said the problem was “a consequence of the way feed models are typically structured”.
PFA tends to invest in infrastructure directly and through co-investments, but it also invests in funds as a way of building long-term relationships with general partners.
“PFA prefers managers to invest with discipline over a number of years,” Tind Larson said.
A more commonly raised concern regarding the large amounts of capital raised for infrastructure funds is the risk that fund managers will be unable to deploy large pools of capital in such a competitive market. Asked about this, Tind Larsen admitted he was concerned about fund managers doubling the size of successive funds – and, by extension, their management fees – without necessarily increasing their internal resources.
Infrastructure fund managers had a record year in 2018, raising $85bn. Preqin, which tracks private-markets fundraising, has said 2019 could exceed this amount if certain large funds in the market hold final closes.
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