UK funds say ‘no’ to cut in returns, ‘maybe’ to profit sharing

The heads of UK infrastructure funds Innisfree and Semperian told the UK’s Public Accounts Committee, Parliament’s spending watchdog, that they would not accept retroactive cuts to contractually agreed returns for privately financed infrastructure projects, but that they might be open to sharing profits from the sale of equity in those projects.

The hearing was part of the committee’s ongoing investigation into the value for money of project finance initiative (PFI) deals. Specifically, the committee’s most recent hearing focused on whether private sector profits from these projects were excessive. PFI is the UK’s standardised procurement process for public-private partnerships (PPP).

In one of the most heated and confused exchanges of the hearing, David Metter, the chairman of UK fund Innisfree and trade body PPP Forum, was asked if Innisfree had been in discussions with Treasury to accept a rebate on the contractually agreed PFI government payments that are costing the UK government around £8 billion (€8.9 billion, $12.8 billion) a year. These payments form the basis of the 8 percent to 10 percent returns shareholders in Innisfree earn.

“We have had discussions, but we have said no,” Metter answered, going on to explain that PFI financing “is no different to an investor buying a gilt: would you go to gilt investors and say, ‘Can you take a little bit less interest to help the British taxpayer?’ If you do it it’s called a haircut, and everybody is terrified of haircuts. If we go to investors and say, ‘This rebate they are talking about is, in fact, a haircut, a rescheduling of your investment’, it would be very bad for UK credibility.”

Metter did say, however, that a big part of the money spent on PFI was for the provision of services and that “there is lots of opportunity there to change and re-gear those contracts, so there are opportunities for savings in that package of services, which is ongoing, and we are supporting that carefully”.

On the topic of sharing with the taxpayer profits derived from the sale of equity stakes in PFI projects, Metter said Innisfree “would be unhappy to do so”. But Bill Doughty, chief executive of UK infrastructure fund Semperian, said he was open to profit sharing, “subject to detail and thresholds”.

Innisfree has raised £1.8 billion to invest in PFI and PPP projects and currently owns interests in 57 projects with a capital value of £15 billion across the healthcare, transport, defence and accommodation sectors, according to its website. Semperian, formerly known as Trillium PPP Investment Partners, was launched in 2007 and manages 106 PPP projects valued in excess of £1.35 billion, also according to its website.