UK Government Appeals to Investors for Infrastructure Cash

The UK government has become the latest developed nation to seek international funding for its domestic infrastructure projects.

Major international institutional investors have been invited to an event at London’s Downing Street hosted by the UK’s Regeneration Investment Organisation to showcase opportunities in three major cities: Birmingham, Bristol, and Leeds.

The move follows similar action by President Obama in July to tackle a lack of infrastructure in the US; a $1 trillion project launched by the World Bank in October; and Canada’s Caisse dépôt et placement du Québec signing up to a C$4 billion ($3.4 billion) set of local public projects, announced this month.

Insurer Legal & General (L&G) has thrown its support behind the UK venture, launching and committing £1.5 billion to a regeneration vehicle. A target of £15 billion has been set to be gathered from other investors and will support general regeneration work alongside housing and infrastructure spending.

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A spokesman for L&G told CIO that the Regeneration Investment Organisation had invited around 30 sovereign wealth funds and large international investors to the event. L&G’s model is already being used for specific projects in other UK cities, meaning investors work with a local partner.

This latest project will look to invest further than the three cities highlighted at the event.

A note from Fitch ratings today showed the net gap in European infrastructure spend to have reached €36 billion in 2015, according to figures from DTZ. A lack of spending and financing from the banking sector has left the shortfall, which has not yet been filled by new investor cash.

Infra net gap

Private equity fund managers should take heed of the California Public Employees’ Retirement System’s (CalPERS) overhaul of its allocation to the asset class and focus on justifying the terms they present to clients, according to Preqin.

“CalPERS’ decision serves as an effective statement to fund managers on the importance of justifying fund terms.” —PreqinThe research firm was responding to last week’s announcement by CalPERS that it wanted to drastically reduce the number of private equity managers it uses in order to cut costs.

“The decision by CalPERS may not immediately result in a drop in overall commitments to private equity funds,” Preqin said in a research note, “but serves as an effective statement to fund managers on the importance of justifying fund terms, as well as the power of the limited partner.”

The research firm said CalPERS’ decision reflected a wider concern among investors that fees were the biggest challenge to their investment in private equity. Roughly 58% of respondents to Preqin’s survey of US public pensions said fees were their chief concern.

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However, appetite for private equity has not waned: the research showed that the number of US public pensions active in the sector rose in each of the past four years. Pensions’ average target allocation also rose in each of the past four years.

CalPERS has roughly 10% of its $296 billion portfolio invested in private equity. Preqin reported that this allocation included 444 funds and 298 active partnerships.

The $187.1 billion California State Teachers’ Retirement System (CalSTRS) is the second biggest public pension allocator to private equity in dollar terms, having invested $21.1 billion (11.3% of its portfolio) in the asset class. Texas, Oregon, Michigan, Washington, and Pennsylvania pensions have all allocated more than 10% of their portfolios, with the latter two investing more than 20%.

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