UK Roundtable: Where’s the deal pipeline?

Infrastructure Investor recently gathered six leading infrastructure asset class professionals together in London for a discussion of the investment climate in the UK. For all the government’s apparent best intentions, those present were frustrated by a lack of opportunity.

Where is the infrastructure deal pipeline in the UK? This was the question on the minds of six infrastructure investment and advisory professionals who gathered in London’s Docklands for a discussion of current market trends. 

As Gershon Cohen, chief executive, infrastructure funds at Lloyds Bank, said: “A visible, significant pipeline, that’s the fundamental requirement. There is a lot of talk about fixing the ‘liquidity problem’ but there must always be a strong determination to bring projects forward. Stop-start procurement does not create investor confidence. I believe that it’s for the government to create the opportunity and to trust the private sector to develop funding solutions.”

Added Martin Lennon, co-founder and head of fund manager Infracapital: “It’s bizarre. The National Infrastructure Plan (NIP) lists all the priority programmes and projects that they [the government] want to do but whenever I speak to investors involved in UK greenfield infrastructure they all say where is the pipeline today?”

Nigel Middleton, chief executive of Barclays Infrastructure Funds, pointed out that the focus of the government has primarily been on economic infrastructure and that, in this area, “it is now critical 
to get a flow of projects developed to a stage where potential investors can evaluate their risk profile in detail”. 

There was also acknowledgement, however, that in some respects the UK is attractive for infrastructure investors. Sergio Ronga, managing director at DC Advisory Partners, alluded to a “very competitive, thriving brownfield M&A market in the UK, with deals such as Northumbrian Water, Wales and West and Veolia Water UK. It’s a well regulated market and there are good legal precedents so investors have a lot of comfort in this space”.

Rob Gregor, managing partner at Balfour Beatty Infrastructure Partners, agreed with this assessment. “The search for safe havens leads investors to well regulated markets like the UK. Are people paying too much [for assets]? That’s an obvious question but you have to compare it with other opportunity sets. If they’re good assets you can still get a decent return.”

Bruce Chapman, a partner at placement agent Threadmark, said that “accessibility is fundamental” to the interest being seen in the UK’s regulated utility sector. He added: “The UK is more open to foreign investors [than other markets] and the regulated utilities sector is characterised by some very large assets that investors can deploy substantial capital into.”

*To read the roundtable in full, be sure to read our special UK Infrastructure Report 2012, to be published alongside the September 2012 issue of Infrastructure Investor magazine.