The idea that it is all sweetness and light in public markets is


nonsense. Mark Humphreys, Invesco Investment Solutions


On the other hand, pension funds are looking for predictable cashflows and stable yields. The challenge is trying to align the two by allowing institutional investors to get a fair return on a low volatility basis, whilst allowing the government to encour- age more private sector investment. From digitalisation to the energy transition where infrastruc- ture is central to a number of megatrends that are set to domi- nate over the coming years. But a lot of the money raised in recent years has targeted existing assets, not building new infrastructure.


The PFI [private finance initiative] model worked well but there was an issue with perception of the private sector making an outsized return from taking minimal risk. Finding a balance between private and public sector objectives will therefore be key in unlocking new capital. Expect the private sector to play a greater role in taking ownership of outcomes as part of their overall incentivisation. Mattingly: There will also be a trend towards national infrastruc- ture spend. Historically, a lot of the investment in UK infra- structure has been by overseas investors. High Speed 1, for example, is owned by the Ontario Teachers’ Pension Fund. Whereas infrastructure exposure by investors in the UK is often overseas. With what is happening in Ukraine, national energy security will dominate infrastructure in the coming years along with sustainable energy.


What other impacts will the war in Ukraine have on the private markets? Dobson: We look at it three ways: direct impacts, indirect impacts and limited partners.


We believe greater flexibility should be employed in contracts, that consider a city’s vision and how people want to live, work and play during the next 10 to 15 years. It is investing into real assets where different cashflow streams can attract different investors at different times. Electric vehicles, hydrogen buses, homes with smart technology and waste-to-energy plants to name but a few, there are lots of ways to invest across that city vision and make a positive change to local communities. The moment is now where the public sector is opening up new pri- vate market opportunities to institutional investors. Aylott: We are seeing infrastructure managers raising additional pools of capital that look more like private equity than infra- structure funds. The lines are getting blurred. Butani: The market is crying out for more investment. Most governments are in large deficits after Covid and infrastructure is high on their agenda.


Direct impacts seem to be muted as most private market man- agers are not exposed. The indirect impact is much more uncertain, as it has added to inflationary concerns and all com- panies are impacted by increasing energy prices. On the final point, we have asked our funds if they have any Russian limited partners in their investor base. Given the sanc- tions there is a potential they may not be able to fund capital calls, so does that leave a hole in the fund. The general answer is no because there are not many Russian limited partners in European and US funds. These are the smaller risks that you may not think about, but, as private market investors, we need to. Humphreys: This is all against a macro environment which has fundamentally changed. Dealing with structurally higher infla- tion comes back to floating rate re-setting in the fixed income space and private equity investments with a degree of inflation pass through. The future will not look like the past. That applies to all asset classes. Aylott: In the short term we might see lower deal activity as peo- ple work through what the uncertainty means. We have heard


May 2022 portfolio institutional roundtable: Private markets 21


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