Investment into UK Infrastructure Equity has been one of the stable success stories over recent years, where other asset classes have faltered. Is this all about to come to an end? A crescendo of concerns would indicate so with the threat of renationalisation of Water, Energy and Rail sectors under a Labour government; increased regulation risk over profits in infrastructure sectors as well as currency volatility with the incoming shadow of the Brexit decision.
Alternatively, does this mean opportunity comes knocking with increased returns in the Infrastructure debt sector?
The UK has for many years been heralded as a treasure trove of investable infrastructure assets. Core infrastructure equity has been generating double-digit internal rates of return and, according to ratings agency Moody’s, there has only been one instance over a 34-year period of an A-rated UK infrastructure bond defaulting However, sceptics fear this may be coming to an end because of three potential developments. Firstly, the opposition Labour Party has stated its wish to renationalise all infrastructure assets should it come to power. Secondly, water regulator Ofwat and energy regulator Ofgem have said publicly that infrastructure asset owners should not be making such large profits off the back of their investments into core UK assets. The third development on the horizon is currency volatility could scare off foreign investors seeking the low-volatility and highly predictable cashflows infrastructure usually offers