In a landscape of muted returns from traditional markets, investments in the private markets present an attractive alternative. Research shows global private equity and venture returns delivered nearly double the equivalent public market performance over three-, five-, and ten-year periods.1 The private markets offer diversification benefits and the prospect of compelling risk-adjusted returns over the long haul — key ingredients for constructing well-balanced portfolios primed for the future.
Infrastructure funds have grown increasingly attractive to global investors due to their potential for stable and long-term returns. Multiple factors are propelling the shift, including the public sector’s need for improved infrastructure and the private sector’s search for stable returns. Goldman Sachs research reports that private infrastructure AUM surpassed $1 trillion and is expected to increase to more than $3 trillion by 2035.2 BlackRock’s acquisition of GIP and General Atlantic’s Actis deal — two recent examples —also highlight the push on infrastructure investing.
Managing infrastructure investments, however, presents unique challenges.
This article explores the intricacies of scaling portfolio and data management for infrastructure investments, focusing on the need for tax efficient legal entity structures, the complexity of accounting data, investor demands, regulatory pressures, and the role of advanced data management systems.
Implementing legal entity structures
Infrastructure funds often attract global investors, necessitating a one-size-fits-all legal entity structure to ensure tax efficiency and regulatory compliance for investors and fund managers. The funds typically have substantial capital, ranging up to $20 billion+, and make significant investments. Their lower transaction volumes also allow wiggle room for a complicated, tax-efficient structure. However, the complexity can be operationally burdensome, with some funds using dozens of legal entities, including masters, blockers, and feeders.
A tax-efficient structure that also complies with numerous regulations requires a deep understanding of the multi-jurisdictional tax laws and regulatory frameworks. Fund managers must balance these requirements to optimize the investment experience.
Addressing complex accounting data
The intricate legal structures of infrastructure funds contribute to the complexity of accounting data. Data ingress and egress can become cumbersome, making it challenging to maintain accurate and efficient records. Each legal entity within the fund must be accounted for separately, adding layers of complexity to the financial reporting process.
For instance, the need to track and consolidate data across multiple entities can lead to inefficiencies and errors. Large-scale investments and institutional investors’ high expectations exacerbate the challenge. Ensuring accurate and reliable accounting data can help minimize discrepancies and affects of financial and regulatory implications.
