Investors warn UK referendum ‘already causing a short-term effect’

Andrew Rose pointed out that the electricity generation and storage is one of the biggest investment opportunities. [GIIA]

According to Global Infrastructure Investor Association head Andy Rose, members of his organisation, including Morgan Stanley and Goldman Sachs, see Europe as an attractive place to invest. But, he warned, the upcoming Brexit  referendum is causing negative “short-term effects”.

Andy Rose is the CEO of GIIA. The 47-member organisation manages a total sum of €300 million targeting infrastructure investments. Previously, he worked as a private investor and in the UK Government’s Homes and Communities Agency, where he was the chief executive.  

Rose spoke to’s Jorge Valero.

What is your view on the investment plan for Europe, the Juncker Plan ?

The Juncker Plan is about mobilising around €315 billion in three years. A lot of this investment will come from the private sector. Therefore, you really need to understand how a well-structured product looks like. This is very important for my members, since they manage the funds of long-term investors, such as insurers or pension funds. It is also very important to have a transparent dialogue with the public sector. Creating an investment-friendly environment is also really important.

Do you think that the design of the Juncker Plan is well-structured or are there some flaws to correct?

It is good, but it is work in progress. As I understand, the Commission is looking to work with advisors to help assist them to develop it. I absolute welcome the engagement to see how we can make it even better.

The plan is based on a €16 billion guarantee scheme backed by EU funds to leverage the private capital. Is this a smart approach?

There is no one-size-fits-all answer. There are lots of different models, from full privatisation to public-private partnerships. What investors want to understand is the risks when they look at the project upfront. If some of the capital can be used to lower the risk for the private sector, for example in terms of guarantees, although there are plenty of instruments you can use, you could attract more money into the projects.

Which are the priorities of GIIA?

As we are a small organisation we have to prioritise certain areas. The members of GIIA have asked me to focus on Northern and Western Europe, the United Kingdom and the US, because they have very mature markets. It is much easier to understand issues in a mature market. Certainly, the ‘Juncker plan’ is targeting infrastructure projects in critical markets for my members, so it is a top priority for GIIA.

Where do you see the biggest opportunities?

There are many opportunities out there. Certainly one of them is the transition from a carbon-based electricity market to a low-carbon electricity market. It is fascinating how technology is changing, for example, in terms of energy storage. I think the whole electricity generation and storage is a huge opportunity. But actually it is not for me to pick but for governments to prioritise where the opportunities are. From my point of view, the governments are the ultimate client. They need to identify what their priorities are. My members will help them and enable them to achieve these priorities, by bringing capital and private sector skills and risk management.

Is this the only interesting field?

Another area would be telecommunications, the expansion of broadband and the next generation of mobile internet (5G). The role of my members is to make investment on behalf of long-term investors, so certainly the area of telecommunications infrastructure has potential. How much money will flow is impossible to answer.

Interestingly, the EU officials in charge of the Juncker Plan underlined many times in the past that it is not their role to pick the projects to invest…

I totally agree. I don’t think is for politicians to pick the winners, but even in privatised markets, like electricity, very often the governments will influence what the price is. I am not saying the government tells investors: “let’s build an off-shore wind farm”, but actually the public authorities will grant the licenses. So they do play an incredibly important role in influencing where the money flows. There is no question that governments, through direct funding, regulation, and licenses have a major influence on which projects will take place.

Europe faces multiple crises, including the risk of a breakup after the referendum to be held in the UK on 23 June. Still, you said your organization prioritises the EU and the UK as investment destinations. Are not these crises a deterrent to invest in Europe?

My sense is that investors are still heavily motivated to invest in Europe. Obviously, as risks become greater, people have to analyse them. But I think European markets still remain a very attractive destination for long-term infrastructure capital.

Have you noticed any difference on the appetite to invest in the UK compared to previous years?

Certainly, there are some evidences of some people wanting to understand how the future looks like.

Is there currently a short-term effect of the 23 June referendum?

Yes, according to the evidence that I am picking up. Obviously, 23 June will determine how people see the future of investing in the UK. Politicians are articulating their perspectives and there are strong reasons to see why staying in the Europe would be a good thing for long-term investment.

If the Juncker Plan is extended beyond 2018, should it count with a larger public money contribution?

We are still in the early stages. Certainly, we think that investing in infrastructure has to be a long term proposition, so obviously it would be interesting to see how the ‘Juncker plan’ evolves over time. But I am not well-sighted to know what has to come after the three year period. One of the important issues for my members is to have stable operating environment, because they are investing money for the long term. So they are interested in knowing that the environment, including regulations, will not change.

Could you name an example of sudden change of regulation?

The solar tariff in Spain was a big issue for investors. They felt they entered into an investment on one basis and then the rules changed. This is a situation that long-term investors find difficult to manage. This is an example of what cause real uncertainty in the mind of investors.

Do you think public investments crowds out private capital?

Around the world, in a situation of low interest rates, there is a call for more investment in infrastructure. I absolutely understand that call. But that does not mean it is crowding out the private sector. The real advantage of the private sector is the skills and ownership in terms of managing the risks and taking long-term decisions they can contribute with. So the question is how the public and the private sector can work together in the best possible way.

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