There are concerns that the equity returns achieved in PFI projects have been too high and that some investors have made windfall gains. This has undermined public confidence in the value for money of these projects. The Government is keen to see more investors with long-term investment horizons, such as pension funds, investing in projects at an earlier stage. These concerns and objectives have been addressed in the following ways:
• the introduction of funding competitions for a portion of the private sector equity, to enable long-term equity providers to invest in projects before financial close. This will widen access to different types of investor and is expected increase competitive tension, with downward pressure on equity pricing in the longer term.
• the structure of PF2 curbs the ability of primary investors to generate excessive profits and, consequently, the potential for windfall gains on secondary market sales through measures including a mechanism to share unutilised funds in the lifecycle reserve, the removal of soft services where contractors have typically included a risk premium in the pricing and the introduction of public sector equity.