The head of infrastructure at the $80 billion Future Fund has cited regulatory risk in Europe and the United Kingdom as reasons to be wary about infrastructure investment in the region.
Dr Raphael Arndt, the Future Fund’s head of infrastructure and timberlands, told the Association of Superannuation Funds of Australia (ASFA) conference this week that he was particularly concerned with the situation in the UK water industry, where industry regulator Ofwat was proposing modifications to licences which would allow for changes in pricing controls.
“We have been attracted to the water industry in the UK because of its outstanding history of regulation, and we have been prepared to fund a share of the billions of pounds of investment the sector needs,” Arndt told the Association of Superannuation Funds of Australia (ASFA) conference in Sydney.
“But we are very concerned about Oftwat’s approach, and think it is hard to understand why they would take that approach rather than working with the industry on an agreed path to any changes.”
Arndt said he hoped the UK Government would “move swiftly and categorically to correct the position.”
“The Government should reinforce the water industry’s standing as a destination for foreign infrastructure investment,” he said.
The Future Fund has A$4.7 billion or 5.9 percent of its assets in infrastructure, an allocation it has built up over the last five years. $2 billion of that is invested in Australia, and around A$1 billion in the UK, largely in transport assets such as Gatwick Airport but also in water, at Southern Water.
Other Australian institutions are also very active in UK infrastructure, with Industry Funds Management (IFM) recently teaming up with a local partner to bid for Stanstead Airport. Other Australian institutions active in the UK include QIC, AMP, QSuper and Australian Super.
“Unfortunately there have been a number of issues in the UK which have given us cause for concern, or at least reasons to pause for thought,” said Arndt.
“For example we have had the imposition of the largest air passenger tax in the world, without any consultation with the industry whatsoever.
“The unclear policies around airport development in the south of England makes it very difficult to investment further capital at this time.”
Arndt was speaking at an ASFA forum on infrastructure investment which was also addressed by the British high commissioner to Australia, Paul Madden.