UK - The UK government has called on pension funds to consider investing in infrastructure, as officials admit hundreds billions of pounds of investments is needed over the next 10 years.
Speaking at a recent conference in London on infrastructure financing, Lord Davies, minister for trade, investment and small business, admitted the UK needs to stimulate private sector investment in infrastructure as "the next decade must see a new wave of investment in key infrastructure sectors, worth hundreds of billions of pounds".
In particular, Davies said: "It's my personal view that we need a new capital market for infrastructure. The changes in liquidity, capital ratios, and the changes in the financial services industry are profound. And therefore the financial services industry is going to find it increasingly difficult to put long-term money into project finance. So we have got to be creative in generating new sources of income."
He continued: My personal view is that the pension fund industry, with such enormous funds under management, is going to be critical to success."
Pension funds across Europe do invest in infrastructure for diversification purposes, usually in a bid to partly tackle inflation hedging. Only recently, Kent County Council announced it was looking to invest £30m-£40m (€34.6m-€46.1m) in a global infrastructure mandate on behalf of its £2.2bn pension fund.
The UK government also launched a committee known as Infrastructure UK, last December, to present ideas to the Treasury on how the planning, financing and delivery of infrastructure might be achieved.
And it is expected that further information on the government's plans for infrastructure investment will then be revealed in the 2010 Budget, expected in March or April.
The list of projects needing financial backing is huge so officials are seeking new thinking on the financing of everything from waste treatment facilities and water infrastructure to low carbon energy systems and high speed rail.
The comments were followed by a report from Preqin suggesting the number of deals completed by unlisted infrastructure fund managers was down 33% at 130 deals over the previous years. Yet the amount of money raised was up 82%, according to the report.
The data compiled from Preqin's Infrastructure Online service showed just 27 deals were signed between 1April and 30 September last year, and the average deal size for the whole of last year was $600m (€430m) and those worth $1bn amounted to just 15% of all infrastructure contracts signed in 2009.
Over 60% of the deals completed related to European projects and 80% were in four core investment areas: energy, telecoms, transport and utilities. The remaining money was spent in educational projects, government-related infrastructure, healthcare, logistics, and waste management, said Preqin.
Debt constrictions and lack of available assets were seen to have contributed to the contraction in the infrastructure market, according to Preqin, and conditions are still difficult as many fund managers will still be dependent on increasing equity ratios or their ability to persuade vendors to reduce their prices.