Large European LPs have ‘virtually stopped’ investing in UK

Demand remains for UK infrastructure, but has largely shifted to UK and Korean investors, says Dalmore’s Michael Ryan.

Large European investors have “virtually stopped” looking to invest in UK infrastructure, according to Michael Ryan, chief executive of Dalmore Capital.

Ryan “used to be able to look at overseas investors in the eye and say the UK is a good place to invest”, but that is no longer the case, he told Santander’s Infrastructure & Energy conference in London yesterday.

The investor base for UK assets has largely shifted to domestic and Asian – particularly Korean – LPs, as evidenced by the firm’s closing of its Dalmore Capital 3 fund this month, which attracted some Western European investments, but commitments were largely driven from the UK and Asia.

The Labour party’s commitment to renationalising industries such as water and rail was re-emphasised this week at its annual conference. Shadow chancellor John McDonnell promised to end “the scandal of the privatisation of water” in a move that would force current water executives out of their roles.

However, Ryan said the threat comes from both ends of the political spectrum, with the ruling Conservative government increasingly upping its rhetoric.

“From both the right and the left, the political scene has damaged the infrastructure market already,” he added.

Ryan was joined on a panel at the conference by Surinder Toor, founding partner of Arjun Infrastructure Partners. Toor said his experience of overseas investors is they currently have a “wait and see” approach to UK infrastructure, a standpoint in contrast to the post-EU referendum reaction when they wanted to take advantage of the devaluation of the sterling.

Toor also compared Arjun’s involvement in UK water to its investment in motorway service station business Welcome Break, saying there is far greater volatility in the former, despite its status as a core infrastructure asset.

“The water sector has posed a few more questions to everyone recently,” he said.

Toor added there would be several other priorities other than renationalisation should Labour gain power. Adam Ringer, investment director at AMP Capital, espoused a similar view, stating that the legal system backing such industries would not change with a change of government.