11 March 2014

IPE: Institutions ready to pour $1 trillion into European infrastructure

Conditions now look right for a revival in European infrastructure investment, but governments risk missing out on the potential growth from this by failing to provide assets and the right regulation, a study commissioned by law firm Linklaters concludes.

The analysis showed institutional investors such as pension funds, insurers and sovereign wealth funds would have around $1 trillion available to put into infrastructure over the next decade. Iain Wagstaff and Ian Andrews, infrastructure sector co-leaders at the firm, said in the study that this extra money and its ability to attract leverage was changing market dynamics. It was driving prices higher and encouraging governments and companies to provide investment opportunities in greenfield projects and to boost the pipeline of brownfield assets for sale. “If those opportunities are created, and the available funds are actually invested into building and upgrading Europe’s infrastructure, the impact on the economy could be substantial", they said.

Analysis from the company Oxford Analytica estimated this investment could increase GDP by 1.4% a year in European countries between 2014 and 2023, and by 1.9% a year in the UK, they said. The cumulative GDP impact of the extra spending in European economies translated into more than $3 trillion by 2023, they said, pointing out this was triple the $1 trillion outlay on infrastructure assets. But even though the case for infrastructure investment is strong, the firm said, it is uncertain whether there will be enough projects and assets on the market to absorb the available funds.

“Governments have an opportunity to secure investment that can boost their national GDP by launching new projects, releasing assets for sale and providing a stable regulatory landscape", the report's authors said. While political will concerning infrastructure investment remains uncertain, Linklaters said, deal flow is more likely to come from corporate disposals as companies seek to cash in on high prices to reduce debt or fund expansion.

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