Private infrastructure has become one of the fastest-growing asset classes for institutional investors over the past decade.¹ Until recently, most of the fundraising had been in closed-end private equity structures. However, over the last three years the number of open-ended funds has more than doubled. What accounts for the change, and what are the relative merits of open-end and closed-end structures?

A new article from TD Asset Management looks to answer those questions.

The difference between the two structures goes far beyond an investment end date and impacts the entire life cycle of an investor's commitment. Proponents of open-ended funds highlight the natural fit between the multi-decade cash flows of an infrastructure project and the long-term objectives of investors. In addition, the client experience is much different. This is reflected in a smoother path of capital, as investors are able to access a known pool of investments and can rebalance their allocation over time, as they do with other asset classes. Rebalancing a portfolio is one of the more powerful tools in portfolio management for achieving long-term goals and better risk-adjusted returns. In a closed-end fund, investors typically can't access their capital until the end of the fund's life. This creates a non-linear path for their capital, requiring investment in a series of closed-end funds or 'vintages' to maintain the desired allocation.

Institutional investors have long invested in open-ended funds within public equity, fixed income and private real estate. Infrastructure funds have remained the outlier, having had their debut through private equity firms with mid-sized investment organizations accustomed to the closed-end structure typical in the private equity space. However, as infrastructure continues to demonstrate its value in a balanced portfolio, demand has grown among smaller institutions and investors, for whom the cost and complexity of closed-end structures may be an impediment.

While the debate is sure to continue about the relative merits of open- and closed-end funds, one thing is certain: investors have never had more options to choose from.

For more details, read the full article.

<sub>¹ Infrastructure Investor. As at Dec 31, 2022.

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