The British people were warned by their former leader David Cameron that their pensions would be at risk, the economy would fall into recession and even peace in Europe could not be guaranteed if they voted to leave the EU. More than a year-and-a-half down the line and such fears have thus far failed to materialise and yet neither has Britain emerged as the Promised Land.
This is certainly the scenario for infrastructure investors in the country who, save for a brief period after the 2016 vote, have carried on as before. The UK has played host to some of the sector’s largest deals in Europe in 2017 such as Macquarie’s purchase of the Green Investment Bank, the Walney Extension wind farm and IFM Investors’ move for the M6 toll.
The outlook also presents reasons to be cheerful. Funds currently in the market include those managed by Hermes Investment Management and Dalmore Capital, with hard-caps of £2 billion ($2.7 billion; €2.3 billion) and £750 million respectively, according to recent pension fund documents. While both funds have room to invest outside the UK, they are said to be confident there is enough in the pipeline to deploy the commitments wholly or predominantly in the UK.
The pair are joined by the debt market, where Allianz Global Investors, buoyed by the success of its first UK infrastructure debt fund, launched its second attempt in the second half of 2017 and could raise up to £500 million. The fund will target both brownfield and greenfield projects and Allianz said earlier in 2017 that it sees “strong, ongoing interest” from both domestic and international investors.
In a similar vein, Macquarie was confident enough about the direction of travel in the UK to launch a second UK infrastructure debt fund after the Macquarie Infrastructure Debt Investment Solutions unit fully invested its first £829 million attempt.
However, dig a little deeper and a bed of roses the UK is not. BNP Paribas Asset Management launched its first debt fund in the second half of the year, with a target of €700 million. While it is happy to invest across Europe, the UK is excluded from this due to short-term currency risks caused by the Brexit vote.
At the end of the year, another debt fund was launched from France, this time from SCOR Investment Partners. In another snub to the UK, SCOR also pointed to currency risks dissuading it from investment, as well as the more blunt assessment that the fund is targeting investment-grade countries in the EU only – from which the UK is in the process of departing.
Further concern came domestically from the London Collective Investment Vehicle, which has gathered eight UK local authority pension funds to work on creating an infrastructure fund. According to the Camden Council pension fund, the group has been warned about investing in UK infrastructure – with the spectre of a resurgent and nationalisation-keen opposition Labour Party looming large following June’s snap election.
Brexit and “a potential future change of government” makes it “imprudent” to invest in the UK, the CIV said. The group subsequently denied it had issued advice “about the impacts of a Labour government led by Jeremy Corbyn” – as opposed to the extensive calculations carried out by the John Laing Infrastructure Fund – although it didn’t have to mention name or party for the advice to be heeded. What is clear, as the CIV agrees a “global product is the most suitable route”, is that, while attractive opportunities clearly abound, the UK has certainly swung up the risk spectrum.