13 October 2020

Asset manager M&G Investments is part of M&G Plc, which completed its demerger from Prudential Plc in October last year. John Mayhew is head of infrastructure finance, leading one of the most long-established private debt teams in the business with a focus on “long-dated assets that match the long-term liabilities of our insurance and pension fund clients,” he says. The team has the freedom to look at infrastructure investments globally.

M&G manages some £40 billion of debt across the asset class, in both public and private debt, and Mayhew explains: “Over the past 20 years, our client base has diversified and we now do all kinds of different transactions to serve different clients. In the past 24 months, our deals have ranged from four years to 46 years, AA to single B, covering floating rate, fixed rate, and index-linked deals, across senior, mezz and junior debt, Opco and HoldCo and in Sterling, US Dollars and Euros. We are sourcing different deals for different clients. We now have a more global reach providing us with more flexibility to look at transactions in more jurisdictions than before.”

Whether jurisdictions are new or not, he says government can help infrastructure investment by developing and sticking to long term policy commitments: “We are investing people’s savings and pensions for the long term and we need long-term stability at the policy level to do that.”

The other key role of politicians comes in providing a framework for and facilitating early stage venture capital for infrastructure projects, Mayhew argues: “There are some sectors where we all know things are going to happen in some shape or form, such as smarter cities and EV charging, but we don’t know whether the VHS or the Betamax model is going to win out, which makes it tricky to invest for the long term with that uncertainty.”

He adds: “We don’t think there is the need for an all-singing, all-dancing replacement for the Green Investment Bank. There is a thriving private finance market that can provide lots of liquidity for well-structured projects. However, if you go out of that sweet spot of assets that most investors are bidding for, and you move into the quirkier areas of unproven technology, that’s where there is a role for government in galvanising those markets.”

The team has continued to invest in the sector in recent months, notwithstanding the effects of COVID-19. “We had a rapid review across our portfolio for any signs of difficulty, but our infrastructure assets have been doing what you may expect – providing some credit stability and cashflow reliability within investor portfolios. Hence we have been able to add some interesting assets in recent months.”

One of the biggest barriers to investment in UK infrastructure today comes in the form of competition for capital, says Mayhew. “We will invest where we see value; if there are other jurisdictions, or other types of assets that compensate us better for the risks we are taking, we will be more likely to invest into those.”

He adds: “There has been a greater perception of regulatory risk in the UK than there has been in the past, and we have been through a particular period of political risk. That political risk may have receded since the General Election, but the overarching backdrop, particularly in the regulated sector, has not changed. The drive for a better social compact, with private capital working in a socially responsible way, and society at large understanding the benefits that private finance can bring, is something that is better appreciated in some countries than others. It is incumbent on all market players to communicate that more effectively.”

Where the role of private finance in UK infrastructure has evolved significantly in recent years is in terms of its commitment to environmental, social and governance (ESG) factors when considering investments.

“ESG has always been implicit in everything we do in infrastructure investment,” says Mayhew. “More recently, many of our clients have instilled an explicit duty to include ESG in their investment considerations and it is at the forefront of all our conversations, including seeking better disclosure from borrowers.”

He adds: “A lot of the early ESG talk was effectively focused solely on environmental issues, but that is no longer the case. If we are looking at investing in a solar transaction, it is not enough to say it has environmental benefits. For example, we need to look into the supply chain behind the solar panels and scrutinise the employment practices of those manufacturers.”

The challenge arises in sourcing the data to respond to client requests, when there are a whole raft of data providers springing up in the market. “No-one has a monopoly on wisdom on this yet, and different providers have differing views on companies for various reasons. Because we have long had detailed credit analysts following these same companies, we provide our own feedback and challenge to some of the data providers on their analysis. We just need that flow of information to help the market to develop more properly,” says Mayhew.

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

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Perspectives on Infrastructure: Investment opportunities in the UK

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