3i's infrastructure chief sees future in listed funds

Michael Queen told delegates at PEI's Infrastructure Investor Forum in New York that listed funds are better shielded from ‘flip pressure’ than closed-end vehicles, despite difficulties in constructing a tax-efficient carry scheme.

Publicly-listed infrastructure funds will in future be better suited for both firms and investors than the structure of traditional private funds, said Michael Queen, managing partner of private equity firm 3i’s infrastructure unit.

“With a listed fund you can confidently say that you’re going to hold an asset for 20 to 25 years,” he said, noting that quoted funds are less subject to pressure for a sale or other liquidity event to satisfy limited partners than private closed-end funds.

Speaking at the PEI Infrastructure Investor Forum in New York, Queen also argued that a listed fund provides a certain degree of transparency to a firm’s activities that may make governments more comfortable with privatising major transportation, energy and other infrastructure assets.

The stringent disclosure requirements mandated by several public market regulators around the globe could go a long way in shedding the perception of infrastructure and private equity firms as potentially dangerous asset strippers not to be trusted as the custodians of public goods.

3i’s infrastructure fund debuted on the London Stock Exchange in March of last year, and at press time was trading at 92.50p (€1.16; $1.50) per share.

When asked whether the difficulty of structuring general partner compensation schemes for quoted vehicles would remain a hurdle for infrastructure firms, Queen responded that 3i had successfully created a synthetic carried interest structure for the London-listed fund.

However, he acknowledged that compensation methods remain a significant problem for quoted infrastructure funds, and that 3i’s synthetic scheme could not be as tax-efficient as traditional carry because it was subject to traditional income taxes and not capital gains taxes.

“It took us a long time to come up with that structure,” he said. “You just can’t create as tax-efficient a model.”