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Concerns Mount Over U.K. Infrastructure Funding

Chairmen of the Greater Manchester Pension Fund and the London Pension Fund Authority will debate the issue at a Conservative Party event on Monday.

  • Joe McGrath

The mismatch between the funding of new infrastructure projects in the U.K. and investor appetite for these assets has been growing, a poll shows.

According to the latest RICS U.K. Construction and Infrastructure Market Survey for the second quarter of 2017, financial constraints topped the list of problems considered to be limiting building activity among 267 chartered surveyors polled. Some 79 percent considered this a problem, up from 70 per cent in the first quarter.

The findings come as the chairman of Greater Manchester Pension Fund, Kieran Quinn, and the London Pension Fund Authority chairman Merrick Cockell prepare to debate the issue with politicians at a Conservative Party Conference fringe event on Monday.

The U.K. government has committed to a national infrastructure plan that it hopes will fund around half of its planned £500 billion ($670 billion) of infrastructure projects scheduled for delivery by 2021.

Infrastructure investor Mike Pinggera, a senior fund manager at London-based investment boutique Sanlam Four, notes that concerns related to initial funding have been around for some time, but he says Brexit presents an additional element to the funding challenge.

“There is huge demand for completed projects because what investors are looking for is long-term, reliable cash flows,” Pinggera says. “The issue is that you need to get people interested in the funding at the construction stage.”

The RICS survey found that concerns around infrastructure funding were at their highest point in four years. Brexit and the general election result were considered responsible, along with difficulties accessing bank financing and credit and cash flow as well as liquidity challenges.

Pinggera said that prior to the global financial crisis, international banking groups provided the majority of debt for infrastructure projects, but some of these withdrew from the market after the downturn.

In May, The Guardian reported that the European Investment Bank was to make it more difficult for large British infrastructure projects to access its loans due to the uncertainty related to the U.K. leaving the European Union.

Despite this, asset managers maintain that investors are as keen as ever on infrastructure as an asset class. Ben Morton, portfolio manager at Cohen & Steers, explains that “there is no shortage of capital to invest” and says that investors have not been discouraged from deploying capital into long-term U.K. infrastructure projects despite Brexit.