Open and closed-ended funds in infrastructure investment portfolios
When pension fund investment in infrastructure was at a nascent stage in Europe and the US in the early 2000s, 10 to 12-year closed-ended infrastructure funds were introduced into these markets as the preferred vehicle because the closed-ended structure was familiar to investors, many of whom had experience in private equity. Investing in infrastructure was new, but the closed-ended investment vehicle was easy to understand. Open-ended funds were a less-understood structure in private markets at this time and they added further complexity to the decisions faced by new infrastructure investors, who were already grappling with this new asset class.
Fast forward to today, and the situation is quite different – closed-ended funds are still popular but open-ended funds are becoming more common in Europe, North America and Asia as investors appreciate the potential benefits of this fund structure for long-term, core infrastructure exposure. Managers and investors globally have embraced the benefits of open-ended funds and they now attract considerable funds under management.
This article provides a detailed discussion of the differences between open and closed-ended infrastructure funds and outlines situations in which each structure has a role to play within an investor’s overall infrastructure exposure.