No one doubts this prime minister’s fondness for infrastructure investment. Boris Johnson’s commitment to refreshing parts of the country that have been underinvested previously is full-throated too. But in a political climate where cycles are shortening, will he feel able to take a long-term view when short-term delivery is what tends to get governments returned?
To suggest that the private sector takes a longer-term view than the public sector seems to turn conventional wisdom on its head. But we might be moving into an investment climate where that is increasingly the case.
Pete Gladwell, head of public sector partnerships at Legal & General Investment Management, says, for long-term investors like L&G, private sector considerations are already diverging from those that drive public sector decision-making. “It’s a very different mindset from someone who needs to be re-elected in four or five years,” he says. “We need to make sure that if we are investing in affordable housing it is still generating income in 30 or 40 years because we will still be paying pensions in 30 or 40 years.”
Louise Ellison, head of sustainability at Hammerson, agrees. “I think that there’s a willingness to invest,” she says. “I think there’s a keenness to spend. But a couple of things are critical. One is time, because these kinds of investments are going to take time. And I’m not sure that the current leadership is particularly patient.
“Then there’s complexity. I think there’s potentially a lack of reality about how complex these things are to pull together and to bring together to actually make them happen in a way that really delivers long-term benefit rather than short-term headlines.”
Coalition of the willing
Striking a balance between patience and the need for results will be a challenge. Managing complexity too. Both will require new ways of working.
“How does government build a coalition of the willing to help them make it happen?” asks Gladwell. “This isn’t something that the government is going to do on its own balance sheet alone. It’s not something that combined authority mayors can do on their own. It’s not even something that local authorities can do on their own. It has to be a coalition. The vision is there, the implementation is the next big challenge.”
Financial instruments will change too, says Gladwell. “What we are trying to do here is rip out the complexity that we put in pre-credit crunch. We are looking to move away from the heavily securitised structures that we as a country came to rely on – things like very complex PFI – to move to a more organic model.
“Let’s say East Birmingham needs a new tram. How do we collaborate to make that happen, to get the right funding structure, and how do we make it as organic and simple as possible?
“There is also complexity we need to address around the different government departments that are involved in that, and particularly the Treasury, helping them to become part of the solution rather than a gatekeeper. I would actually be putting someone from the Treasury in [West Midlands mayor] Andy Street’s team and saying, ‘Look, we’re not going to be coming and giving you proposals anymore. You’re going to co-create the proposals with us. And it’s your job to go back to your colleagues and make sure they tick the boxes around state aid and balance sheet treatment, etc’.”
Investment and impact
It’s a changed mindset that reaches beyond the very biggest players. Investment managers are responding too. “Measuring the impact of your investment is absolutely top of the criteria. In the last 12 months it’s gone pretty much to the top of the list,” says James Thornton, chief executive of Mayfair Capital.
“If we are asked to pitch for a new mandate, that’s one of the first questions the consultants will ask. And impact investment doesn’t mean giving up some of your return. It means looking at the impact that your investment has made on the local community and all those other things.”
John Gravett, head of real estate management at Cluttons, already sees old silos breaking down with emerging technologies. “Look at the future and electric vehicles, it’s paramount for 2030. Changing from diesel and petrol, going to electric fully, requires 210,000 charging points and inductive charging all along the roads.
“Overlay that with digital connectivity and autonomous vehicles and you bring quite a few sectors together. It’s one of the first times you are bringing these massive industries to work on one scheme. It’s massively exciting and it’s a great opportunity for UK policy. But there’s an awful lot to get under the skin of over the next four, five or six years in terms of how we can actually deliver these projects on the ground.”
One problem has receded, however. “We need to move away from saying, where’s the money coming from?” says Gladwell. “Because the money is there. There are huge amounts of capital ready to invest in this. The economics work, it’s the right thing to do and these are really exciting challenges. It’s a matter of joining up the dots and seeing some leadership to make it happen.”
This EG debate was in partnership with
See also: The best of MIPIM from the EG Studio
