Utilising private funds to rebuild UK infrastructure and kick-start the economy is a job for asset managers with formidable skills, writes John Osborne
Plans to attract some £20 billion from institutional investors to build roads, power plants and hospitals in the UK over the next decade have some way to go.
In November 2011, the government launched its second National Infrastructure Plan to support additional investment. It said that it had signed a memorandum of understanding with two groups of UK pension funds and was also working with the Association of British Insurers to set up an Insurers’ Infrastructure Investment Forum.
According to Roger Mattingly, president of the Society of Pension Consultants: “£20 billion represents less than 2 per cent of UK pension fund assets. The potential symbiotic and exponential benefits of institutional investors providing funding for infrastructure are too great a prize for this potential not to be realised.”
Matt Taylor, managing partner of Rockpool Investments, agrees that the private sector can provide the funds. “The UK’s top 500,000 wealthy individuals have investable assets of at least £500,000 each – that’s £250 billion in total. If they allocated just 10 per cent of their portfolios to infrastructure, we could see £25 billion flowing into the sector.”
Lack of investment in UK infrastructure has created an annual £78-billion GDP ‘black hole’
With yields of 7 per cent not uncommon, more and more private investors are beginning to invest in infrastructure, he says. “Our investor network recently funded a £5-million social housing scheme. They liked the high yield, backed by a 20-year local authority rent guarantee.”
However, Richard Threlfall, KPMG’s head of Infrastructure, Building and Construction, says it is estimated that at least £400 billion needs to be invested in the UK’s infrastructure over the next decade. “That’s £40 billion per annum, on the current 65 per cent privately funded basis,” he says.
“Investors are crying out for more clarity from government and stability from regulators to provide a firm basis for investment,” says Mr Threlfall. “Currently there are reviews on going by government on the electricity market, airport capacity in South-East England and the strategic road network. Each of these needs to be brought swiftly to a conclusion.
“The government should also consider re-establishing tax relief on infrastructure investments in line with other G20 countries, a move that would have real and lasting impact on jobs and capital investment in the UK.”
Declan Curran, founder of property repair and maintenance firm, HomeFix Direct, says a new report commissioned by the Civil Engineering Contractors Association, entitled Securing our economy: The case for infrastructure, claims the UK has faced a £13.1-billion infrastructure construction output shortfall in the past ten years.
According to Mr Curran, the report shows a lack of investment in UK infrastructure has created an annual £78-billion gross domestic product (GDP) “black hole”, as well as highlighting how boosting the sector to the standard of other developed economies could contribute £10 billion to the economy annually by 2026.
He says that, if the UK’s infrastructure had progressed in line with comparable developed economies, such as the Netherlands or Switzerland, the country’s average annual GDP would have been £1,536 billion between 2000 and 2010, rather than £1,458 billion.
John Woodhouse, Experts Panel chairman at the Institute of Asset Management, says more than £100 billion of assets are available in local government pension funds and that this could be called on to help finance rebuilding the UK’s infrastructure.
But he believes more needs to be done if these ambitions are to be realised. Mr Woodhouse claims there are far too many asset specialists in the UK, and not enough people with the training and skills to bridge the gap between sourcing funding and the various skills needed to create and maintain those assets.
Most people think an asset manager is somebody who works for a bank, he adds. Matching funding with skill sets is likely to go a long way to rebuilding the UK’s infrastructure.
Another challenge faced by asset specialists is that they must be able to combine sharp business skills with strong technical ability. This requires the skill to spot opportunities in the way IT systems are being managed to reduce costs or make more effective use of an organisation’s assets.
Provider of IT-enabled business services Steria is currently partnering with the Department of Health on the NHS Shared Business Services project, delivering back-office services to 40 per cent of the NHS. This project required investment in back-office services that will eventually lead to savings of £4 billion for the NHS over the next five years.
A wider problem is that as much as 50 per cent of assets on the books of multinationals may be either poorly described or no longer in use and cannot be located during a physical audit. Furthermore, one asset management consulting firm judges, from over a decade of experience, that as much as 65 per cent of fixed asset data is incomplete, inaccurate or altogether missing.
Managing corporate as well as public infrastructures in the years ahead will require asset managers with formidable commercial, scientific and technical skills.