Pension scheme consultant Watson Wyatt has criticised the fees on infrastructure funds charged by their investment bank sponsors.

It said banks should lower the fees and allow pension schemes to invest in infrastructure funds for longer periods. Investment banks generally restrict ownership to under 10 years to maximise fee income through the continual restructuring or resale of assets. Jane Welsh, a senior consultant at Watson, said fees on infrastructure funds frequently comprise a 1.75% administration fee and a 20% profit share: "Our clients don't want to pay private equity type fees for modest expected returns. The higher scale should only be levied in the early stages of a project when improvement work needs to be carried out." She said pension schemes should be given the chance to invest in projects for at least 20 years to underpin their liabilities. If the period of investment stretches to 30 years, schemes can consider infrastructure as an alternative to bonds. Schemes regard the flow of income as particularly attractive when funds invest in local monopolies, such as toll roads. Infrastructure offers protection against inflation, although rows with users occasionally result when charges rise dramatically. Watson Wyatt's clients have awarded 10 mandates to infrastructure managers this year but the money involved totals less than £300m. Welsh said clients' appetite for infrastructure is being restricted by the scale of fees. She was concerned banks would continue to charge high fees to justify the prices they are paying for companies such as the UK's AB Ports, whose assets are being repackaged into infrastructure funds. "There is the risk of a price bubble." Welsh stressed that Watson's clients are keen to increase their exposure on the right terms: "It is a broad opportunity set with a different risk/reward profile."