A.28 The responses generally supported the principle of public sector investment in project equity to align public and private sector interests in project outcomes, subject to addressing any conflicts of interest with the role of the public sector as customer. Respondents also highlighted the effectiveness of public sector equity co-investment in some existing projects in aligning public and private sector interests, increasing transparency of project performance and giving the public sector access to a share of investment returns. These benefits were, however, weighed against the increased exposure of the public sector to project risks that would come with equity co-investment, and the potential for conflicts of interest between public sectors interests as both customer and investor.
A.29 In relation to the potential for the regulation of equity returns, respondents generally considered that regulation is most applicable in sectors where services are paid for by the end user rather than by Government. Many respondents considered that an approach of sharing of equity returns would be more effective than a capping of returns but should be balanced by sharing of downside risk too and preferably only applied where public sector equity is invested. If a sharing of returns were to be introduced then a stepped or tiered approach was generally favoured in order to retain performance incentivisation.
A.30 A number of responses expressed the view that restricting sales of equity for a minimum period would not be acceptable and would either result in some parties withdrawing from the market or increasing required equity returns to reflect an illiquidity premium.