Industry figures have warned of a gap between the interests of the government and the UK’s pension funds when investing in infrastructure, following the announcement a further £3bn will be spent on UK infrastructure from 2015.
Chancellor George Osborne’s announced the extra spending on infrastructure in yesterday’s Budget but Allianz Global Investors said more focus was needed on unlocking additional sources of investment and more education was needed on the subject.
Chief investment officer for infrastructure debt Deborah Zurkow said: “In particular there is a gap – perhaps bridgeable through education – between the type of projects the government is seeking investment for (new builds) and the types of investments pension funds are looking to make (refinancing).”
The government has identified an estimated £200bn pipeline of infrastructure projects, most of which will need to come from the private sector, which includes the UK’s pension funds attracted to the long-term inflation-linked returns of infrastructure.
However, funds have traditionally leaned towards established ‘brownfield’ projects which do not incur start-up costs rather than ‘greenfield’ projects, such as new builds, which require initial costs at the outset.
Zurkow added: “By deepening investor understanding of this specialised sector, together we can improve the chances that new projects get off the ground while investors tap into an asset class with attractive risk-adjusted returns in a low-yield environment.”
Society of Pension Consultants president Roger Mattingly said more detail was required on Osborne’s announcement. “The key will be to ensure that the extra investment needed is concentrated in the most important areas, such as high-speed internet to attract and facilitate imports and exports,” he said.
Elsewhere, the Confederation of British Industry (CBI) said while plans to boost capital spending on big ticket infrastructure projects from 2015 will be welcome, businesses will be impatient to see where this money will flow to in the Spending Review – and urged the government to do more.
CBI director-general John Cridland said: “The new guarantee to support the Drax power station is encouraging, but high expectations for further guarantees have fallen flat. The government needs to do more to demonstrate to global investors that UK infrastructure is a prize worth pursuing.”
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