Andrew Gill, Co-Fund manager, TIME:UK Infrastructure Income, makes his case for UK infrastructure as an investment opportunity and the sectors set to present the greatest opportunities for growth.
The long-term investment case for UK infrastructure is as much out of economic necessity, as it is opportunity. In the short-term there is a more compelling value opportunity.
Getting Britain building again
The UK government looks serious about getting Britain Building Again. The long-awaited National Infrastructure and Construction Pipeline from Whitehall’s Infrastructure and Projects Authority (IPA) outlines 660 projects over the next 10 years. The last published UK infrastructure pipeline by government expected up to GBP775 billion to be spent on infrastructure and construction across the public and private sectors in the next decade but pressure on this figure is likely to be upwards given the requirement to invest and the government’s aim of growth.
However, infrastructure is notoriously slow and expensive to complete in the UK but there are early signs of long-term government planning and some early interventions, differing from the previous government. For example, new planning changes primarily focused on housebuilding have been positively received.
Opportunities for private capital
The government is expected to release its long-term infrastructure and industrial strategy in the next few months. This could help shape infrastructure investment opportunities benefitting private capital. The greater certainty and government direction, plus attractive prices makes UK listed infrastructure an attractive addition as we have already seen from the all-cash bid for UK infrastructure trust, BBGI Global Infrastructure from a Canadian pension fund.
Sectors of opportunity
There are a number of UK sectors that present particularly strong investment opportunities. For example, healthcare, which despite the Government’s support, it is likely that the 10-year NHS plan will need more private capital, offering significant opportunities for UK Infrastructure Strategies. UK Health Secretary, Wes Streeting, also wants to accelerate the rebalancing of healthcare services towards community-based care. Listed companies in the UK already own large portfolios of GP surgeries and through an ongoing modernisation programme, there looks ample opportunity to expand.
Elsewhere, data centres such as the proposed 140MW Data centre in Buckinghamshire and Tritax Big Box’s Slough development are gems in a highly supply constrained market. Despite the uncertain AI news over recent weeks, this type of infrastructure is a necessity for UK competitiveness as the economy continues to digitise.
More public private partnership models?
EY estimates that the UK government will have at least a GBP700 billion shortfall in infrastructure spending by 2040. The UK budget in October talked of ‘crowding-in’ private investment to help fund major infrastructure projects. Public infrastructure delivered by private sector is also more likely be on budget and on time.
A range of models are available already for public private partnerships (“PPP”) to follow, not just the one-size-fits-all like Private Finance Initiative (“PFI”). PFI has been questioned for its value for money but there are other very successful partnership models. The Tideway 25km ‘Super Sewer’ is one such example which is being privately financed but with government guarantees which not only reduces the cost of the project, but it also ultimately reduces cost to the public who pay for wastewater charges. Whilst this model won’t be appropriate for all projects, there is a growing sense that a range of models, including government co-investment, could provide a next generation of successful PPPs.
Investment outlook
UK government bond yields remain elevated and discounts to UK infrastructure trust net asset values remain large. This has caught the eye of private capital with a Canadian pension scheme having an all-cash bid for the share capital of BBGI Infrastructure accepted. The bid price is at a 21per cent premium to the closing share price (5th February 2025) highlighting that some investors are seeing attractive value in the market.
UK infrastructure investment trusts continue to provide robust and growing income and with many dividend yields for diversified and renewable infrastructure trusts typically ranging from 7 per cent-11 per cent we expect future returns to be highly attractive. With capital values repriced to higher interest rates and attractive, often inflation-linked income streams, we think, like the Canadians, now is an opportune time for investors re-assess the value of UK infrastructure.
