How to unlock billions in private infrastructure investment

In our second of four reports - this time, focusing on the financing aspect of capital investment - we find that while good progress has been made in encouraging greater investment in productive assets by pension funds and other long-term investors, more attention needs to be devoted to how investment opportunities are structured by project originators, like local authorities, so that they present an investable proposition. Moderate but steady inflation-linked income over 40-45 years is typically what investors look for, but often there is a dearth of such projects.

The report makes a number of recommendations for institutional reform which could foster a reliable pipeline of projects. These include the UK Infrastructure Bank and the Office for Investment forming a partnership on the basis of a Memorandum of Understanding. The former will use its advisory function to emphasise structuring opportunities in line with the needs of domestic long-term investors, while the latter focuses on domestic investors to a much greater extent, matching sponsors with appropriate originators. On the other side of the equation, the Government could also launch an infrastructure equivalent of the LIFTs initiative - the Long-term Investment in Infrastructure Initiative (LIFI) - inviting long-term investors and asset managers to propose ideas for partnership investment vehicles which would better suit existing investment propositions.

Away from infrastructure, we find that -again- the Government has made good progress on making more capital available for investment in innovative, early-stage companies and start-ups, and the UK continues to be Europe’s premier destination for VC investment. However, more could be done in the wake of fast-growing competition from France in particular. The report highlights opportunities in the space of intellectual property finance in particular. With its combination of a strong research base and a premier financial centre, the UK could copy some of the initiatives undertaken by South Korea to try to become the world’s top destination for IP finance.