With the June 23 referendum on Britain’s membership of the European Union now five weeks away, a report suggests many institutional infrastructure investors fear a Brexit.
S&P Global Ratings surveyed 51 infrastructure funds for the report, including investment management companies, insurance companies, hedge funds, pension funds, and sovereign wealth funds. The findings indicate 71% of respondents are concerned British secession from the EU would restrict infrastructure investment for at least two years after the vote.
For one, presently around a quarter of UK infrastructure investment comes from public sources, and of that the European Investment Bank (EIB) is a major conduit. The Bank has invested more than €42 billion in the UK over the past eight years, of which almost half (€19.1 billion) went to infrastructure. Overall, the UK alone represented 11.2% of all EIB funding last year, or a record €7.77 billion. The future of this relationship is uncertain if the UK were to leave the EU, investors say.
Secondly, S&P says currency volatility could ensue, raising infrastructure development costs, and increasing revenue instability, particularly for overseas investors. Survey respondents expect other immediate consequences of a Brexit to be political instability and macroeconomic turbulence that could postpone investment decisions.
Conversely, respondents also believe a departure could present new opportunities for capturing higher returns. For one, if foreign investors leave the UK, the infrastructure investment universe would widen for domestic investors. For two, if an exit did cause currency volatility, the Bank of England would likely adjust its interest rate policy – a reduction in interest rates would free up access to capital for investors.
©2016 funds europe
