Perspectives on Infrastructure: Investment opportunities in the UK

In the third interview of the series, Adam Gordon of Investec considers the barriers to private investment in UK infrastructure and discusses the development of the new Cardiff Parkway Station

29 September 2020
Adam Gordon of Investec headshot and quote

Adam Gordon is Principal Developments MD at Investec and has been working in infrastructure for 25 years, the last few focused on Investec’s funding of a new mainline railway station and commercial property development in east Cardiff.

The station in St Mellons is expected to welcome more than 800,000 passengers a year, linking them to Swansea, Cardiff, London, Bristol, Birmingham and the South Wales Metro. The scheme was initially proposed by local businessmen Nigel and Andrew Roberts. In 2016, they formed a joint venture with Investec, Cardiff Parkway Developments Limited, and the Welsh Government became a joint venture partner at the end of 2018.

Gordon says they have completed a pre-application consultation and expect to submit a planning application this year: “Most rail schemes in the UK are currently run by the public sector or Network Rail,” he says. “Delivering something financed by the private sector is unusual and means we have to work through how the rail industry and the finance market will approach things, and then figure out how to bridge the gap so finance and rail industry expectations are met.”

One of the challenges is that the supply chains in the rail industry are set up to provide services to Network Rail. “The frameworks that a financed, private sector scheme would target have some differences to common practice, which we are going to have to work through with the supply chain,” he says, adding, “To help us work through this process we’ve assembled a strong team including SLC Rail, Arup and, of course, Burges Salmon.”

With little precedent for private sector involvement, there are additional challenges in navigating rail industry processes. “There are only a handful of schemes which have been co-developed by local governments or developed as a bolt-on to infrastructure like airports,” says Gordon. “Then there is HS1, where there was a strong public sector component. The fact that a few of these have been successfully completed gives us confidence for Cardiff Parkway, knowing the scheme has huge potential benefits for the region.”

The backing of the Welsh Government, both as a shareholder and a stakeholder, has been extremely encouraging. Other stakeholders, like Network Rail in the Wales and West region, Transport for Wales, the Cardiff Capital Region, and Cardiff Council have all been supportive, recognising the positive regional impact that can be delivered.

Going forward, Gordon says central government and key industry stakeholders must signpost a clearer way if private sector funding into rail is to increase. “There is a lot of attention on rail at the moment and, while recent announcements are necessarily focussed on the immediate challenges that COVID has brought, there is clearly still a keenness to develop and improve rail infrastructure and enhance the industry model to improve the customer experience. This will no doubt alleviate road congestion and drive forward the sustainability agenda,” he says. “Private sector capital would multiply the resources for infrastructure development, so the government should develop a clear revenue framework and delivery model to encourage the private sector.”

That model could back up the policy intent by identifying a pipeline of larger projects and for others, simply setting out the methodology for delivery of those projects, including the steps that need to be completed to access the revenue sources. A clear process to getting to a “bankable” scheme, with development milestones and objective assessment criteria, would be extremely useful.

“Ultimately, as an early development investor, you need to be able to see that if you can get to a certain point, you will be able to deliver,” says Gordon. “And in order to get to that point, you need to see the clear work packages that need to be completed. There is risk, but it can then be quantified, and an investor can see a way to get a project to fruition.”

Considering the barriers to private investment in UK infrastructure, Gordon says the biggest one is a clear delivery process: “There’s a lot of appetite, particularly if you are looking at large infrastructure funds. Everyone is currently chasing the same operating assets and passing those between each other, and there are not enough new opportunities. If there were more assets and clearer opportunities out there, the private sector investment funds would gladly invest, so it’s really about creating that pipeline and whether the rail sector will adapt to enable this. Messaging from Government before the COVID exigencies suggested that they will make changes following the Williams Review and that private sector investment is valued. The recent announcements suggest that the Williams Review results and a future industry framework will come once things settle down again. Our team awaits these announcements with interest.”

For 2020, Gordon says his priorities are to secure planning for Cardiff Parkway station, get through the next design stage, and achieve reasonable certainty on delivery of the project for both construction and financing.

If you would like to find out more or have any questions, please contact Victoria Allsopp, director in our Infrastructure team.

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Perspectives on Infrastructure: Investment opportunities in the UK

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