UK Infrastructure Bank pledges to make direct equity investments

The head of the UK’s new £22bn infrastructure bank said it is building the capacity to make its own direct equity investments, while defending the body from criticism for placing taxpayer money with external fund managers.

In an interview with the Financial Times to mark the first anniversary of the UKIB, chief executive John Flint said he was recruiting staff so that the bank had the expertise to back projects across the country, instead of relying on third-party asset managers to identify opportunities.

The bank was launched last June by the government as an independent organisation with the aim of investing taxpayer money alongside private finance into infrastructure projects. It is focused on clean energy and “levelling up” local economies, specifically companies and initiatives that have trouble securing private financing.

However last month, a member of the House of Lords criticised its record so far, highlighting a £100mn contribution to an infrastructure fund managed by Octopus Investments and £250mn given to NextEnergy Capital’s £500mn solar fund.

Lord Aamer Sarfraz, the prime minister’s trade envoy to Singapore and a former Conservative party treasurer, said UKIB should prioritise “the difficult direct deals” and “not outsource their responsibilities to third-party fund managers”, where it only has influence, rather than the final say, over investment decisions.

Flint, the former chief executive of HSBC, defended the early contributions to third-party funds as “a legitimate technique” and said it would continue such investments while it was hiring its own in-house analysts.

“We absolutely do intend to make direct equity investments ourselves,” he said. “We don’t have the skills to make direct equity investments ourselves today, but we will resource for that. A year from now we’ll have the ability.”

Flint added there is sometimes a “philosophical aversion to third-party managers . . . but I want to keep an open mind about it. It is a great opportunity to deploy public money alongside private.”

“We’ll retain the option to use [them] where we think it makes sense,” he said. “We absolutely control the mandate, we decide what the objectives of the fund are, and we decide what sectors to go into.”

On Wednesday, UKIB unveiled a report outlining its first strategic objectives. It has £22bn to invest over the next five to eight years, comprising £8bn of debt and equity, £10bn of government-guaranteed finance and £4bn for local authority lending.

Flint said the strategy will focus on clean energy and investing in projects relating to renewable energy supply as the UK shifts to net zero by 2050. The bank will also fund other sectors including transport, water, waste and digital.

The bank has already financed a range of projects through debt and third- party funds, including £50mn as a co-lender to broadband provider Fibrus and a £107mn loan to the Tees Valley Combined Authority for its South Bank quay development.

UKIB is aiming to generate a return on equity of between 2.5 per cent and 4 per cent. It will also focus on specific infrastructure challenges, such as the dearth of charging points for electric vehicles and the need to retrofit buildings to make them energy efficient.