Regulatory Compliance for Infrastructure Funds

Infrastructure funds operate within multiple overlapping regulatory frameworks that extend beyond typical investment adviser requirements. In addition to SEC registration and securities law compliance, infrastructure managers must navigate sector-specific regulations governing utilities, transportation, energy, and telecommunications assets. Cross-border investments add foreign regulatory considerations, while environmental and permitting requirements create ongoing compliance obligations at the asset level.

Investment Adviser Compliance

Most infrastructure fund managers register with the SEC as investment advisers under the Investment Advisers Act. Unlike venture capital managers who may qualify for the VC adviser exemption, infrastructure funds typically do not meet the specific conditions required for that exemption. The Private Fund Adviser Exemption under Rule 203(m)-1 may apply to smaller managers with less than $150 million in U.S. private fund assets, though most infrastructure managers exceed this threshold given typical fund sizes.

Registered investment advisers face comprehensive compliance obligations including written policies and procedures, code of ethics, books and records requirements, and periodic SEC examinations. The Marketing Rule governs how performance and track record can be presented to prospective investors. Custody requirements affect how fund assets and investor securities are held and verified.

Key Compliance Areas

• Form ADV and Form PF: Registered advisers file Form ADV annually and update it for material changes. Form PF requires reporting of fund-level data, with larger private fund advisers facing more extensive reporting obligations. Recent rule changes have expanded Form PF requirements for certain large advisers.
• CFIUS and Foreign Investment Review: Infrastructure investments often involve assets considered critical to national security, triggering Committee on Foreign Investment review requirements. Transportation, energy, and telecommunications assets frequently fall within CFIUS jurisdiction, requiring careful structuring and potentially mandatory filings when foreign investors participate.
• Sector-Specific Regulations: Utility investments may involve state public utility commission oversight. Energy assets face FERC jurisdiction. Telecommunications infrastructure involves FCC licensing requirements. The compliance function must track sector-specific obligations across a diverse portfolio.
• Environmental Compliance: Infrastructure assets often carry significant environmental permits and ongoing compliance obligations. While operational compliance typically resides with asset management, fund-level compliance must monitor material environmental matters that could affect investment values or create fund-level liability.
• Anti-Money Laundering: Though private funds are not currently subject to formal AML program requirements under the Bank Secrecy Act, institutional LPs expect robust investor due diligence. Infrastructure funds with sovereign wealth fund or pension fund investors typically implement comprehensive AML procedures.

Cross-Border Considerations

International infrastructure investments create multi-jurisdictional compliance requirements. Each country where assets are located may impose investment restrictions, licensing requirements, and ongoing reporting obligations. Some jurisdictions restrict foreign ownership of critical infrastructure, requiring local partners or specific ownership structures.

The European Union's foreign direct investment screening regulations affect infrastructure investments in EU member states. Similar frameworks exist in the United Kingdom, Australia, Canada, and other markets where infrastructure funds commonly invest. Compliance must track evolving requirements across multiple jurisdictions.

Tax treaty considerations intersect with compliance planning. Structures designed to optimize tax treatment must comply with anti-abuse provisions and substance requirements in relevant jurisdictions. Transfer pricing for cross-border management arrangements requires documentation and compliance monitoring.

Fund Document Compliance

Beyond regulatory requirements, infrastructure funds must comply with obligations established in fund governing documents. The Limited Partnership Agreement typically contains investment restrictions that may be more specific than regulatory requirements—concentration limits, leverage constraints, geographic restrictions, and sector limitations must be monitored systematically.

Side letters create individualized compliance obligations. Large institutional investors commonly negotiate for enhanced reporting, co-investment rights, ESG commitments, and most favored nations provisions. Tracking these obligations across a large LP base requires systematic processes.

ESG and Sustainability Compliance

Environmental, social, and governance compliance has become increasingly formalized for infrastructure funds. The EU's Sustainable Finance Disclosure Regulation affects funds marketing to European investors. Various voluntary frameworks—GRESB for infrastructure, TCFD for climate disclosure—have become expected by institutional investors.

Greenwashing concerns have led to regulatory scrutiny of sustainability claims. Compliance programs should ensure ESG-related disclosures in fund marketing materials and investor reports are accurate and appropriately qualified.

Compliance Infrastructure

Infrastructure fund compliance typically requires more resources than similarly-sized funds in other strategies, given the regulatory complexity. Key elements include:

• Written policies and procedures addressing both adviser-level and asset-level compliance areas
• Tracking systems for sector-specific permits, licenses, and regulatory filings
• Processes for CFIUS and foreign investment review analysis
• Side letter obligation tracking across the investor base
• ESG data collection and verification procedures
• Training programs covering infrastructure-specific compliance matters

Questions to Ask When Building Compliance Programs

• What sector-specific regulatory requirements apply to current and anticipated portfolio assets?
• How will CFIUS and foreign investment review obligations be identified and managed?
• What processes exist for monitoring environmental compliance at portfolio assets?
• How are cross-border regulatory requirements tracked across multiple jurisdictions?
• What ESG disclosure obligations apply based on fund marketing and LP requirements?
• How are side letter obligations tracked and monitored for compliance?

Compliance for infrastructure funds requires attention to both investment adviser regulations and the sector-specific frameworks governing portfolio assets. Building comprehensive compliance infrastructure from fund formation helps manage the complexity inherent in this asset class while meeting the elevated expectations of institutional infrastructure investors.