06 October 2020

Walshe is a director in the infrastructure debt team at Aviva Investors, having joined the business in January 2015. Responsible for originating GBP and Euro investment opportunities for the range of infrastructure debt funds managed by Aviva Investors, she has a specialism in rail and worked on the delivery of the landmark £4.1 billion Thames Tideway Project in London in her former role.

COVID-19 has had a mixed impact on the Aviva Investors’ portfolio, says Walshe, with transport assets more affected than other sectors. “The rest of the portfolio has proved quite resilient, and even within the transport portfolio, we have seen positive government intervention and quality sponsors stepping up to support their assets,” she says.

The impact of falling power prices on some assets is now easing, and in Europe, traffic flows are starting to increase on most toll roads, she says. After an initial pause, deal flow has remained steady: “Deal flow over the last three months has increased and we have closed six deals so far this year, with two more in execution. If somebody had said to me in April that we would get eight deals over the line this year, I’d have been pleased,” says Walshe.

Those investments are reflective of the current environment, including renewables, data centres, smart meters, healthcare and transport assets, and half have been new deals that got off the ground in a working-from-home environment, despite the hurdles.

“Infrastructure is a long-term asset class,” says Walshe. “COVID is obviously absolutely unparalleled in terms of the black-swan nature of the event, but we are looking at an investment horizon of at least 20 years, through cycles, so long-term stable assets that can absorb periods of volatility are what we look for. We have seen a continued confirmation from our clients that they like and are committed to infrastructure as an asset class given its resilient qualities and strong ESG credentials.”

She says Aviva Investors’ priorities have not changed, with the focus remaining on meeting investor objectives from both an investment and an environmental, social and governance (ESG) perspective.

Aviva Investors was an early mover on the ESG agenda and it is inherent within their investment process, with Walshe observing that investors are increasingly focused on the societal element. “The environmental perspective was very obvious to start with but S and G have been less straightforward. The idea of the social impact of an investment is becoming much more important,” she says. Aviva Investors provided c£200 million of debt financing for a fleet of new rolling stock to connect the regional and valley lines of North Wales in 2019, and Walshe says that deal was very important from a social connectivity perspective.

“Even though these were Diesel trains, we had to take a balanced approach,” she says. The trains meet EU 2021 emission standards and were designed to accommodate battery power in the future when the technology can provide sufficient power and range. “It is not just ‘no’ because of the diesel power source. It’s not going to be economic to electrify the lines in parts of rural Wales, given the typography and low population density. However, the local population need public transport now to support social and economic mobility. This illustrates our nuanced and thoughtful approach to ESG.”

She says she does not believe the pandemic will have a long-term impact on the approach to private investment in UK infrastructure: “The government policy around supporting infrastructure is encouraging,” says Walshe, “although the role for private finance is less clear. A lot of the £5 billion infrastructure investment programme that has been announced is public sector focused, and what we would hope to see is more alignment between public and private to really deliver infrastructure effectively.”

She adds: “We are waiting for the Energy White Paper to come out from government, along with the National Infrastructure Strategy. There is some expectation around those, likewise the Williams Rail Review, which we understand may now be subsumed within a Transport White Paper. There is the opportunity for a huge amount of investment, but infrastructure policy and regulation need to be clear, aligned and well signposted in order to maximise the private sector involvement and encourage meaningful dialogue amongst all key stakeholders. I believe the industry’s door is open.” 

While she supports the “levelling up” agenda and government’s efforts to rebalance infrastructure investment and promote better connectivity and economic activity across different regions of the UK, she doesn’t discount the challenge. Success can only be achieved if a new model to harness private investment into local infrastructure can be found to replace the hole left by the demise of PFI/PPP.

Having worked on Thames Tideway, which made use of a Regulated Asset Base (RAB) funding model, Walshe is also positive about a proliferation and development of different funding approaches. “That was a precursor that led to an opening up of thinking, but we need different models, not a one size fits all, which can be tailored to the specific nature of a project. RAB is well established within the utility space and works well for large-scale complex infrastructure with a higher risk profile, however the government needs to be quite nimble and adaptable to the myriad of other options at their disposal. Whilst the classic PPP is out of favour, the public sector needs to work together with the private sector to identify what delivery models can fulfil all stakeholder objectives.”

The priority now is to get some clear direction from government. Walshe says: “We do appreciate that government has had quite a bit on its plate. However now is the time for a real focus and push with infrastructure – for the government to come out with clear, palpable action plans so that we could get to work together on those and start to deliver clear positive outcomes for society and the economy.”

COVID has done nothing to slow Aviva Investors’ appetite or that of its clients; now it is looking to government to unlock more investment opportunities.

If you would like to find out more or have any questions, please contact Lloyd James, partner in our Infrastructure team.

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Perspectives on Infrastructure: Investment opportunities in the UK

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