Philip Hammond's decision to end the government’s practice teaming up with private finance for big construction projects shouldn’t concern investors in UK infrastructure funds, it has been claimed.
Private Finance Initiatives (PFIs) involve private funding for the construction of government infrastructure, with repayments made over multiple years, but they became controversial after public bodies were weighed down by debts and billions of pounds of extra charges were racked up.
During yesterday's Budget, Mr Hammond said the government would not sign any more of the contracts.
Alex Moore, head of collectives research at Rathbones, said the chancellor’s announcement did not impact investors in infrastructure funds now because the government’s policy was to honour all of the contracts currently being operated, many of which were agreed before the current government came to power.
He said: "At first glance, if existing contracts are being honoured, then in the short-to-medium term there should be no major reaction. The duration of existing contracts is very long.
"To be clear, not every infrastructure fund is PFI-focused. Some buy real assets and loans too, and some are not restricted to the UK. However, if PFI contracts are coming to an end, then it’s not unreasonable to expect some funds to slowly change their strategy. The bottom line is there’s no need for investors to panic."
UK infrastructure funds have grown substantially in size in the past decade, with investors partly motivated by the relative security of the income from the funds at a time of lower bond yields. Many such funds are invested partly in PFI contracts.
david.thorpe@ft.com
