“The announcements on the big projects are symptomatic of the government wanting to show that they are being proactive,” says Clarke. “However, we are seeing a lot of activity at the smaller end of the spectrum such as in the energy sector, including building bio-mass plants as well as expanding broadband across the country. For example, we just increased our investment in Gigaclear (a provider of ultrafast broadband connectivity to under-served rural areas in the UK via fibre optic cable).”
One of the main attractions of these assets is that they are not as sensitive to demand risks as other assets such as toll roads, according to Dewey. The danger is that if there are fewer cars using the road than anticipated it will impact the risk assessment and return profile. By contrast, broadband is seen as a necessity in today’s interconnected world.
Aviva though is willing to take construction risk if it is properly managed as well as structured and they are getting compensated.
“The important thing is to have an experienced team who can conduct detailed analysis and due diligence,” says Dewey. “We have created eight separate portfolios that consist of smaller transactions between £200 to £500m. In this way we have more control and can create better returns.”
BUYING NEW
The big ticket items such as hospitals, schools, transport and sewage also have their allure for groups such as Amber Infrastructure Partners, which recently increased its stake in the Wolverhampton Building Schools for the Future project to 82% and is a leading investor in the Thames Tideway Tunnel.
“There are two ways of acquiring infrastructure assets: either by buying into an existing infrastructure project in the secondary market or getting involved with new ones,” says Giles Frost, chief executive of Amber Infrastructure. “We tend to focus on being the first owner of new infrastructure assets which is a more challenging and laborious process. There are financial benefits in that we believe we get better value for our shareholders investing this way. However, you need a blend of skills and a big team of people if you are going in at this early developmental stage.”
