School construction and redevelopment opportunities are evolving, says Rachel Fixsen
For many years, the UK has been fertile ground for investors in educational infrastructure – most notably between 2000 and 2010 when the Labour government’s Building Schools for the Future (BSF) investment programme in England was running.
While the plan was scrapped in 2010 by the then Education Secretary Michael Gove, a review conducted at the time concluded there was a pressing need for some ailing school buildings to be renewed. This led to the establishment of the Priority Schools Building Programme (PSBP) through a privately financed public private partnership (PPP). An invitation put out to schools in need of urgent repair to bid resulted two years later in 261 schools being given the go-ahead for rebuilding or repairs through the PSBP.
Amber Infrastructure is active in the UK schools market and has a portfolio of BSF investments in more than 100 schools across the country. The portfolio was acquired by its main investment vehicle, the London-listed International Public Partnerships (INPP) in 2011. Amber also has a PSBP investment, providing financing through five tranches to more than 40 schools.
Ivan Wong, deputy head of primary and secondary fund investments at Aberdeen Standard Investments, sees scant opportunities to invest in schools in major developed countries today. Social infrastructure investors should look elsewhere, he suggests. “There are very limited new-build or refurbishment schools projects being procured by government” in Europe, Australia and the US.
“For example, in the UK the majority of the schools built in the Victorian era have now since been upgraded or rebuilt to 20th century standards.” As such, he says, the UK government is now placing greater priority on procuring more strategic infrastructure that has a direct economic benefit.
Wong cites “the three Hs” in the UK as the main infrastructure priorities for today’s lawmakers: the Hinckley Point nuclear power plant, Heathrow’s third runway, and the High Speed Rail 2 (HS2) project.
But he says Aberdeen Standard has “identified a large, demonstrable pipeline of social infrastructure projects – many of which are schools projects” in the Andean region of Latin America – namely, Colombia, Chile, Peru and Uruguay.
Colombia, for instance, is facing a shortfall of 51,000 classrooms, according to a 2014 International Development Bank study. To bridge the gap, the National Planning Department of Colombia announced a $2.4bn investment plan to deliver the classrooms by 2030, according to Wong.
Following on from this, the Colombian Ministry of Education announced plans to tender the construction and operation of about 100 schools, under a PPP structure.
Further south on the continent, Uruguay has reached financial close on two PPP schools projects since June 2017 which will result in the creation of 102 new educational facilities across the country. On top of this, Uruguay will tender two more PPP projects by the end of the year to build more than 100 schools.
Wong says the opportunity prompted Aberdeen Standard to launch the market’s first Andean region social infrastructure-focused investment fund – Andean Social Infrastructure Fund I – in September 2017.
Mark Richards, partner for energy, environment and infrastructure at international law firm Bryan Cave Leighton Paisner (BCLP), said education and schools is an interesting sector for investors. “There are a wide range of differing models for delivery of education infrastructure from primary/secondary schools to universities, and technical and vocational education and training (TVET),” he says. “I would say that the opportunities are truly global.”
Richards says opportunities could include a potential second wave of PSBP PFIs (or PF2s), which are yet to be announced, and the rumoured schools programme for Wales.
Other opportunities, he says, include “leasing to the public sector, delivery of outsourced education services or more traditional private-finance projects”.
Australia, Canada, Germany, Finland and New Zealand are countries where private-sector capital can be deployed in building education infrastructure assets.
In 2015, BCLP advised a consortium led by Amber Infrastructure on the closing of privately-financed batches of schools using the UK government’s PSPB Aggregator platform, within its PF2 funding model.
Politics will always play a role in social infrastructure, Richards says – and particularly in the education and schools sectors. “Education infrastructure investments are likely to be long-term – so there’s a relational contract between public and private sector which is tested long-term and the relationship needs to adjust to reflect challenges in service delivery.
“Daily problems in the education and schools sector are likely to be amplified and subject to public scrutiny so ensuring the investors and operators are attuned to client, government and student needs is likely to be critical to success of the investment,” he says.
Wong agrees that all social infrastructure investment is dependent on politicians. “In our experience of investing across the world over the last two decades, we have found that positive political support is key to facilitate the success of any social infrastructure investment,” he says.
Even contractual arrangements are not invulnerable to cooling enthusiasm from either side. “If the intention from either the public or private-sector side becomes to not honour the spirit of the partnership, ways can easily be found to frustrate matters despite there being a very detailed legal contract for 20-30 years between both parties,” Wong says.
Since Aberdeen Standard started investing in social infrastructure schools PPP projects in 1998, Wong says it has identified a number of key features for success – in any country:
• Strong political and public support for PPP as an infrastructure procurement tool;
• Stable political regime;
• Robust legal system with a record of contract enforcement;
• Positive economic outlook to support state’s obligations;
• Deep pipeline of opportunities;
• Efficient and transparent procurement approach that facilitates delivery.
“At present we feel the Andean region is one of the only geographies in the world that exhibits all of these characteristics,” Wong says.
Richards, meanwhile, sees potential for more schools infrastructure investment opportunities arising from the United Nations Sustainable Development Goals, which were set out in 2015.
“Investment in schools and education feels like a good thing in itself,” he says.
“But more objectively, the UN Sustainable Development Goals for education set targets for 2030 that include, among other targets, full access to high-quality schooling for early childhood through secondary, equitable access to affordable TVET and more investment in education facilities to improve learning environments,” he says.
The goals are obviously extremely compatible with international investors’ ESG standards and requirements, he points out. “Investors are likely to need to focus and partner with operators who share their ESG goals and standards too,” Richards says, adding that opportunities arising as a result of the SDGs are truly global.
PensionDanmark: PPPs for Danish schools
The pension fund is keen to bring its experience in UK investing to its home market
Danish pension fund PensionDanmark, which is an active infrastructure investor with DKK21.5bn (€2.9bn) of its total DKK240bn of assets in the asset class, has investments in schools in the UK via London-based schools and social infrastructure specialist Innisfree.
Torben Möger Pedersen, PensionDanmark’s chief executive, says his pension fund is one of the larger investors in Innisfree’s fund and has now had the holding for about 10 years.
“We’re very satisfied with the investment,” he says.
Although PensionDanmark has for several years been encouraging the use of the public-private-partnership (PPP) model for infrastructure funding in the country, it has yet to make any schools investments in Denmark.
“Up to now, there have been just three examples, and our PPP vehicle hasn’t been able to identify any opportunities in this area,” he says.
But based on its UK experience, he says PensionDanmark would be very interested if an infra-structure investment market was to develop in Denmark.
“I would certainly encourage public authorities to look into this area with an open mind, because there are definitely some very attractive economies of scale to be harvested if you invest in school on a large scale,” he says.
Möger Pedersen says the practice of starting from scratch each time a local authority wants to build a school is not cost effective.
Furthermore, using PPP for educational building projects can give municipalities access to higher levels of expertise, including the latest thinking on how to use architecture to stimulate learning.
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