Low investor expertise could hold back investment into infrastructure, reports bfinance in its first survey into the asset class.

Two thirds (67 per cent) of respondents expect to see annualised net target returns of ten to 15 per cent in the next three to five years for the sector, and 60 per cent report that debt is more difficult to access than equity.

The independent specialist financial services consulting firm said the results from the survey, which was conducted among large infrastructure investors, showed an increased interest in infrastructure.

"We are seeing increasing interest in infrastructure from pension funds and other institutional investors mainly due to the sector's potential to deliver long-term, predictable, often inflation-linked cash flows and the ability to put large amounts of capital to work," explained Vikram Aggarwal, senior associate, bfinance.

The same or higher returns are expected from infrastructure investments compared with three years ago, according to managers in the survey.

Only 33 per cent of participants publish estimated total expense ratios for their investment vehicles, with 54 per cent saying they do not, and 13 per cent unsure.

"Infrastructure has a different fee structure from other asset classes which can make it difficult for investors to fully understand costs, and therefore, accurately calculate expected returns. It is important for investors to understand what subset of the asset class they are exposed to as not all infrastructure is equal and that the fees being charged are commensurate with the level of work and the underlying risks involved. For instance, one should not expect to pay a 2/20 PE fee structure for investment in mature brownfield assets."

The broad definition of infrastructure encompasses many areas of investment, making it difficult for investors to understand the risks that they are actually exposed to, Aggarwal added. "The recent credit crunch has shown that the asset class is not entirely uncorrelated to the business cycle as investors are sometimes led to believe. Its specialised nature, frequent lack of transparency on fees, and absence of a credible investor body (like an INREV for real estate) to promote industry best practices, act as hurdles for further institutional investment despite the asset class's obvious attractions."

The survey showed that a 'lack of expertise' is the biggest obstacle for investors entering this asset class, with 60 per cent of respondents agreeing.

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