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U.K. Government to Investors: Fund Our Growth Projects

The U.K. government is hoping institutional investors will back a series of domestic growth projects as the country prepares to leave the European Union.

The U.K. government wants to attract institutional investors to new domestic infrastructure and real estate projects and make it easier for them to invest in growing technology businesses, according to its autumn budget statement. Plans to stimulate flows to these areas were among a raft of measures announced by British Chancellor Philip Hammond in the statement, unveiled in the House of Commons on Wednesday.

Among the new projects are plans to build five new so-called garden towns, an urban-planning initiative to alleviate housing shortages, and fund these developments through public-private partnerships, contracts where private companies build and operate infrastructure but where the government shoulders some of the financial risk. These partnerships are sometimes controversial and have met with criticism in the U.K. in recent years. The partnerships have previously been used to fund developments of many of the country’s public hospitals — and, in some instances, saddled local authorities with substantial levels of debt.

Despite this, investors have historically liked some of these projects, as they are backed by government, which removes some of the risk, while investors are able to charge an additional risk premium to cover any potential losses should a project go bad.

“New private-public infrastructure projects have been limited in recent years, but this commitment could underpin a resurgence in the number of infrastructure projects available for private companies to tender for,” William Argent, an adviser to investment firm Gravis Capital, told Institutional Investor.

Toby Buscombe, global head of infrastructure for investment consultant Mercer, agreed.

“Depending on the detail of individual projects and how they are to be financed, this could be good news for a range of institutional investors,” he said.

However, the proposals were not well-received by everyone. Former pensions minister Steve Webb, who is now director of policy at investment group Royal London, said the government plans to unlock more pension fund money for infrastructure may not ultimately amount to much.

“The small print of the budget says that all this amounts to is simply asking the Pensions Regulator to ‘clarify the guidance’ given to pension funds about long-term investment,” he said. “If we want to see serious money being invested by pension funds in infrastructure, we need a supply of projects that pension funds can invest in, not minor tweaks to rules and guidelines.”

[II Deep Dive: Concerns Mount Over U.K. Infrastructure Funding]

The Chancellor also used today’s budget as a springboard to unveil the “Financing Growth in Innovative Firms” project, an initiative that aims to “unlock £20 billion [$26.6 billion] of patient capital investment to finance growth in innovative firms” over the next decade. These proposals included policies for a new £2.5 billion investment fund within the British Business Bank, which it would sell or float once it had an established track record.

The long-term investment strategy included a specific nod to pension funds, with a promise to give pension funds “confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio.”

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