What changes to the current approach to the allocation of risk and the procurement and delivery of public facilities and services would increase institutional fund investment appetite, either directly or through intermediary investment vehicles?

Institutional investors themselves will be better placed to respond to this question. 

SFT's observation is that where there is a regulated sector and strong elements of direct user charges for the assets (either completely as in the utilities, or partially as in rail or social housing) then a corporate or quasi asset-backed form of financing can work well (eg regulated Asset Base financing), potentially with an aggregating intermediary (such as The Housing Finance Corporation7 in the Registered Social Landlord sector). These structures are known to attract institutional investment through the capital markets. 

However, where the Government is ultimately funding the asset from taxation, and the asset is specific in nature it is difficult to see such a structure creating a risk profile substantially different from direct government borrowing. If there is any substantial movement away from a risk profile that sees Government making a payment only for an "available asset" (other than potentially as discussed in Q9 and Q13), then the argument for paying for financing separately from general government borrowing is weakened as many of the other benefits discussed in Q4 can be delivered in other ways.

Within the confines of a PPP structure that sees payments made for "available assets" then there are options, such as discussed in 2c. (amended risk allocation and reduced range of services) which SFT believes could increase institutional fund investment appetite. Discussions with market players suggest that strong investment grade rating and liquidity are important and options to deliver this are discussed more in Q6 below.

The bundling of assets together to form a portfolio for investors to diversify risk and create an investment opportunity of scale is a potential, but history of bundled PPP deals shows this to be difficult to achieve from within the public sector due to the issues of having multiple client bodies, timing difficulties and inter creditor issues. Private sector side debt aggregators of funds could potentially address this issue and other respondents are better placed to comment.