Remarks on institutional investment in privately financed public infrastructure”, Response to the UK Treasury Call for Evidence on the Private Finance Initiative

by Frédéric Blanc-Brude
Abstract:
Among the objectives set in HM Treasury’s call for evidence on the reform of the Private Finance Initiative (PFI) is the encouragement of pension fund investment in the delivery of public facilities, namely, the public infrastructure projects delivering public services. With PFI projects or their equivalent looking forward, institutional investors may consider investing in equity directly at the special purpose vehicle level, via an unlisted intermediary fund, or a listed fund. While all three types of equity investments are now frequently made, the equivalent debt products are still rather uncommon, but, in principle, investors may lend directly to project companies, by extending loans or purchasing project bonds, or via unlisted or listed debt funds.1 As I discuss below, the possibility and opportunity of institutional investment in infrastructure projects revolves in large part around the relative value of intermediation in the context of the strategic asset allocation decision and portfolio optimisation of pension funds. In what follows, I consider in general, non-technical terms what asset and risk management questions are raised by the prospect of substantial pension fund investment in UK public infrastructure.
Reference:
Remarks on institutional investment in privately financed public infrastructure”, Response to the UK Treasury Call for Evidence on the Private Finance Initiative (Frédéric Blanc-Brude), In EDHEC Business School Working Paper, 2012.