Australia’s IFM Investors, one of the world’s largest infrastructure fund managers, has been talking to the UK government about a financing model that could funnel pension capital into post-Brexit Britain and support its plans for a national infrastructure bank.
The Build Britain Model, based in part on its Building Australia Model unveiled earlier this year, would help harness long-term capital for the financing of infrastructure construction while addressing the weaknesses of previous public-private initiatives.
In a submission to the UK’s Public Accounts Committee inquiry into lessons from major projects and programmes, IFM said pension capital could deployed at scale. “Funds with significant global experience in delivering large infrastructure projects should be natural equity partners for government in the building, operating and maintaining of national and local infrastructure,” it said.
IFM Investors unveiled its proposal today, following the release last month of Britain’s first National Infrastructure strategy, and proposals for an infrastructure bank to be set up in the spring.
David Neal, CEO of IFM Investors, told IPE Real Assets: “Launch of the national infrastructure bank is really a critical development, as it will have a quality team and that is where the real expertise on infrastructure will lie.”
Neal, who was appointed CEO at IFM this year after 13 years at Australia’s Future Fund, expects the British government to be heavily reliant on outsourcing part of the execution of its infrastructure plan, including devising the optimal ways of engaging with the private sector.
“Once the bank is up and running, we will be able to really engage and have more detailed conversations on our model,” he said.
IFM has begun conversations with British authorities, including a conversation on Tuesday between Neal and Jesse Norman, financial secretary to the Treasury.
Neal said the initial response from the UK government has been “tentatively positive” and there was interest in the model at a “high level”.
In its submission, IFM has recognised how previous public-private initiatives have tended to incentivise participants to “build for today, not tomorrow”, so that “costs are back-loaded onto the operation and maintenance contracts across the lifetime of the assets”.
Under the Build Britain Model, pension funds are required to provide meaningful equity upfront.
“As investors, they make their returns through optimal long-term operation performance and asset management, rather than through high upfront fees and a planned post-completion sell-down of equity,” the submission said.
IFM proposes a “shovel-ready” approach, involving early upfront collaboration covering project scoping and alignments on different problems that need solving.
The model will provide an “open book transparency to better manage risks and prevent profiteering”, the submission said.
Neal told IPE Real Assets that IFM, which is owned by 27 Australian superannuation funds, was not seeking to be prescriptive in proposing its model. “We are absolutely not saying this is the way it should be done,” he said. “Our model is one of many variants of infrastructure financing.”
The UK government’s plans to increase investment in infrastructure and create a national bank has also been welcomed by a number of domestic investment groups.
Last month, Ted Frith, chief operating officer at GLIL Infrastructure, which manages infrastructure investments on behalf of UK local authority pension funds, said the ”plans will help draw capital to the UK – much of which may have otherwise found its way to infrastructure projects elsewhere”.
Frith has argued previously that the future of UK infrastructure investment rests with the country’s pension funds.
Similarly, Darryl Murphy, managing director of infrastructure at Aviva Investors, has stressed how private capital must “play a large role alongside the public purse in delivering” the government’s ambitions.