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End of PFI reduces access to attractive income and stable returns

Getting exposure to attractive income from UK infrastructure may become harder
November 1, 2018

The outlook for listed infrastructure funds has become even more uncertain following the announcement in the Budget that the government is abolishing private finance initiative (PFI) contracts, which have been a source of attractive income and stable returns.

Chancellor Philip Hammond said that PFI schemes don't provide value for money or appropriate risk-sharing between taxpayers and investors, so there won't be any more. But Mr Hammond committed to honouring all existing PFI contracts, in contrast to the Labour party which says it will bring PFI projects back into the government’s fold if it wins the next election.

No new PFI projects have been awarded since 2016, and confirmation that there will no further ones could mean the existing contracts become more valuable as the number of them falls. “This clarification from the government is helpful for the listed infrastructure sector and, if anything, makes existing projects more valuable to investors, given the statement of intent and 'scarcity value' with no new projects,” said Iain Scouller, managing director of investment funds research at broker Stifel.

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