Simon Davy is Head of Private Markets at Local Pensions Partnership (LPP). He is part of the team responsible for the origination, execution and management of LPP’s infrastructure investments, including those made through GLIL, the infrastructure fund backed by six of Britain’s local government pension schemes that have committed over £1.8 billion for investment.
Going into 2020, Davy says his priority was the deployment of capital, very much focused on high quality assets with strong defensive characteristics. This objective has been disrupted by the arrival of COVID-19, with the need for increased scrutiny on current assets combined with delays to new investment opportunities. The second half of 2020 promised to be busy, but the focus remains on high quality assets.
“The infrastructure team reviewed close to 55 deals last year,” says Davy, “including looking seriously at nearly 20 deals. Across LPPI and GLIL we signed two acquisitions, one in the UK and one in Europe during 2019; the UK investment made by GLIL involved a substantial minority stake in Cubico’s UK operational wind and solar portfolio. We pulled out of some processes given our view of rising political risk, particularly the threat of nationalisation risk.”
Following the UK general election in December 2019, there is now some political certainty for the next few years and LPP is keen to support government policy by investing in infrastructure assets. “We see ourselves as responsible long-term investors who should be owners of UK infrastructure,” says Davy. “We are not seeking outsized returns, but sound long-term investment strategies through being socially responsible, fulfilling our corporate responsibilities, and meeting the objectives that are increasingly important to our stakeholders.” However, the positive tone is tempered by the uncertainty for any COVID recovery, as well as the looming issue of Brexit.
It was not just political uncertainty that made 2019 a difficult year for deployment. Competition also drove up asset prices, particularly in offshore wind. Davy says: “There has been significant international capital coming in to bid for those projects, particularly from the Far East. Those investors are willing to pay a premium to a fair market price on the basis that capturing knowledge of constructing these projects has additional value to them in their home markets.”
He adds: “For the last three to five years financial investors have dominated investment into utilities and renewables, with strategic investors still present in transport assets. In the last 18 months we have begun to see corporates coming back into the market and competing for investments in utilities, seeking growth, so the infrastructure financial investors certainly haven’t had it all their own way.”
That said, the prospects for deployment look more positive going into the new decade, albeit with some disruption from COVID impacts. “We think there are good opportunities now in the UK and Europe, across a number of different sectors, but the impact on travel and power prices has impacted the transport and energy-related markets. We are undertaking a review of the pipeline, and can already see in excess of £1 billion of capital that could be deployed on opportunities that we have already identified.”
Davy is looking for leadership and support for private infrastructure finance from the new government: “There is always an element of political rhetoric, but what we would like to see are clear signs that the new government wants to encourage new capital into infrastructure at a time when the cost of investing for the public has never been lower. Investing alongside government and encouraging further investment would surely be a good thing to do. Perhaps we will see a change in attitude on regulation too, with utilities in a position to help promote growth through investment.”
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