HK Summit: GIC ‘more cautious’ on UK regulated assets

The sovereign wealth fund thought the UK was the ‘best and safest place’ to invest, but ‘we were wrong’, its CIO said, referring to GIC’s negative experience with Heathrow Airport.

Ang Eng Seng, the head of infrastructure investment at Singapore’s sovereign wealth fund GIC has said the organisation is “definitely more cautious” about investing in the US and Europe because of increased regulatory risk posed by rising populism.

Speaking at the Infrastructure Investor Hong Kong Summit on Wednesday, Ang cited the example of establishing a base in the UK to invest in regulated assets, beginning with a stake in Heathrow Airport operator BAA.

“We kicked off in London thinking it was the best and safest place [to invest]. My gosh, we were wrong,” he said.

Ang said it had proved “almost impossible” to secure approvals for the expansion of Heathrow Airport via the building of a third runway and that it had reminded GIC that investments in regulated assets were not without risks.

“Investing in regulated assets has risks and a key risk is regulatory surprises. We need to price that [when making investments] – it’s almost like an insurance premium we need to build in,” he said.

“If we can’t do that, we just stay away. So, we’ve not done any further investments in the regulated space in the UK.”

Commenting on the funding gap for infrastructure investment in Asia, which was estimated to be around $459 billion per year by the Asian Development Bank in 2017, Ang said that he also believed there was a “dealflow gap” in the region, adding that the industry needs to “make a better case for private capital involvement”.

“Clearly, there is more capital chasing after the opportunities [than there are deals to meet demand],” he said.

“This has clearly resulted in elevated valuations – not just in infrastructure, but in all asset classes. This is something we have to live with. It’s not going to change unless there’s a big downturn.”

On fund manager selection, Ang said GIC looks for managers that can complement its own in-house capabilities and most likely to team up with those who were able to offer a “buyout skillset” in creating value-adding opportunities.

He added that a “key consideration” for GIC when looking for new partners was the ability to make material co-investments alongside fund commitments.