New analysis shows that private investors, including pension funds, sovereign wealth funds and specialist investors are playing a key role in delivering improvements in world infrastructure, according to a new report by PwC and Global Infrastructure Investor Association (GIIA).
Global Infrastructure Investment: The role of private capital in the delivery of essential assets and services is the first evidence-based account of the contribution of private capital to major infrastructure. It explores the increasing role of the private sector in investing in infrastructure and delivering essential public services.
Key characteristics of specialist investment arising from the analysis and accompanying case studies include
1. Having a long-term focus, and approach their assets in a sustainable way
2.Consistently demonstrating a strong desire to deliver performance improvements and meet regulatory targets
3.Understanding of their economic and social roles as owners of essential services
4.Being prepared to invest more into their assets – even through a period of diminishing returns.
Despite regularly-aired concerns around the impact of the profit motive of private investors on the service levels of their assets, the addressable evidence in fact suggests the opposite.
The analysis of case studies shows that private investment in infrastructure has produced improvements for consumers, driven by a need to compete (in particular for non-monopolistic infrastructure such as seaports and airports), shifting strategy towards customers; and a desire to meet ever greater efficiency targets set by regulators.
The report finds that whilst regulators appear to have become more empowered, private investors typically embrace the challenges, investing to improve performance and investment, in return for long term, sustainable returns.
Analysis by PwC and GIIA of funds raised since 2004 shows a clear downward trend in return expectations from 14% in 2004 to 10.6% in 2016. Regulators have also taken advantage, allowing ever-lower returns in regulatory reviews over the last decade.
The report warns that whilst the overall picture is a positive one, the infrastructure industry will need to continue to develop and modernise – with particular focus on managing asset performance, being more transparent in ownership and governance structures, and developing greater ability to invest in new infrastructure, through “greenfield” allocations and new investment structures.
Colin Smith, Partner at PwC commented:
“With infrastructure a relatively new market, having emerging over the last two decades, there was minimal evaluation on the impact of specialist investors on the world’s infrastructure. We believe this is the first global study of its kind.
“It is clear through the analysis that private investment has had a profound and positive impact on the developed world’s infrastructure, and is beginning to take hold in the developing world. We have seen consistent themes with performance higher through good management and continuing investment.
“It is important that investors continue to demonstrate strong asset management skills so that the industry is well positioned to drive the next wave of development and improvement.”
Andy Rose, CEO, Global Infrastructure Investment Association commented:
“This report makes an important contribution to the debate about the role of private finance in delivering the world class infrastructure that is so clearly needed in both developed and developing markets.
“By presenting the evidence base through case studies, the positive role private capital can play is clearly shown. GIIA members are demonstrating that they can improve the performance and efficiency of the infrastructure they own and operate whilst responding to the challenges set by regulators on behalf of consumers.
“With Governments around the world facing constraints on spending, efficient private capital is pivotal in closing the infrastructure gap”.