A major shift in Government’s understanding of institutional investors’ requirements has the potential to create jobs and enhance economic growth by attracting pension funds and insurance companies to take significant direct exposure to infrastructure investments, according to a Study, “UK Infrastructure: The challenges for investors and policymakers”, published today.
The prize for Government, if it is able to develop a stable, long-term, national strategy, including the creation of new legal and financial frameworks to attract institutional investors, is a huge boost to GDP of more than £400 billion, if the current £310 billion National Infrastructure Plan is implemented in full.
This strategy should be through a combination of:
- ‘Invest and sell’ asset transfers
- Reanimation of the Private Finance Initiative
- Creation of a National Investment Bank or Fund
In addition, the Study’s authors recommend that the national accounts should make a clear distinction between public debt that is backed by saleable assets, and general public debt that is not.
The Study is published jointly by Llewellyn Consulting and Pension Insurance Corporation (“PIC”), a specialist provider of insurance solutions for defined benefit pension funds.
John Llewellyn, of Llewellyn Consulting, said: “Government has been very slow off the mark to engage in public sector investment in the wake of the Global Financial Crisis. Despite their expectations and pronouncements, little assistance in meeting the shortfall has been forthcoming from the private sector.
“To increase the levels of private sector infrastructure investment, Government needs to establish a coherent, national strategy for UK infrastructure which investors can see has long-term stability. Government also needs to assume its responsibilities in planning, delivering and, to some extent, partially financing certain projects, at specific stages. The potential prize is huge.”
Mark Gull, co-head of Asset and Liability Management at Pension Insurance Corporation, said: “As an institutional investor with the same liabilities as defined benefit pension funds, we share their interest and current frustrations in seeking long-dated, stable cashflows, which provide a decent return above risk free yields.
“Risk free yields have been explicitly forced down by policy, pushing up pension liabilities. Government should now seek to increase the supply of suitable risk assets to help trustees support their pension liabilities. Ultimately, what I think is required is a major shift in the Government’s understanding of investors’ requirements. This study will help them bridge that gap.”
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