Financial News

  • 19 February 2014, 14:23

Funds Tell PM UK Investment Case 'Damaged'

Some of the world's biggest infrastructure funds have warned David Cameron that uncertainty over industrial regulation could jeopardise their willingness to invest in Britain.

Sky News has learnt that executives from the funds, who included Larry Fink, the chairman and chief executive of BlackRock, met the Prime Minister in Downing Street 12 days ago to discuss the prospects for securing further investment from them into the UK.

Among the institutions represented at the meeting were the Abu Dhabi Investment Authority (Adia), Allianz, Axa, the Canada Pension Plan Investment Board (CPPIB) and Fidelity, an insider said.

According to a source familiar with the discussion, a number of the executives who attended the talks with Mr Cameron complained that changes to regulatory frameworks in the aviation, energy and water industries risked damaging the case for investing in those sectors.

The warning reflects increasing anxiety among overseas investors about the movement of regulatory goalposts which could affect the returns investors make from billions of pounds deployed in Britain in recent years.

In recent months, Ed Miliband, the Labour leader, has pledged to impose a price freeze on gas and electricity providers if his party wins the next general election in 15 months' time, as well as calling for a legal cap on the market shares of high street banks.

Other regulatory interventions have included a demand from Ofwat, the water regulator, that providers must accept lower rates of return on equity and capital in the next five-year regulatory period that runs to 2020.

Last month, the Civil Aviation Authority ordered that Heathrow Airport Holdings should cut landing charges by less than the rate of inflation from this year until 2019, while rival Gatwick should be subject to a new monitoring regime.

ADIA is among the shareholders in Gatwick's parent company, while CPPIB's UK investments include a 32.9% stake in Anglian Water.

The warning from some of the world's biggest fund managers, who between them control trillions of pounds worth of assets, is especially sensitive because it comes as ministers try to attract new investment for major infrastructure projects such as the new HS2 high-speed rail link between London and Manchester.

The Government also wants to raise billions of pounds from inward investors to finance the development of new nuclear power stations in Britain, a project about which several Chinese investors are in discussions

The meeting on February 6 was also attended by commercial secretary to the Treasury Lord Deighton and government policy minister Oliver Letwin.

A source close to one of the attendees described the meeting as "cordial and constructive", while another said that while they had welcomed the chance to raise their concerns with Mr Cameron, there was a possibility that their words would fall on deaf ears.

A Downing Street spokeswoman declined to comment on the names of those who attended the meeting but told Sky News: "Attracting inward investment is a key part of our long-term economic plan and the Prime Minister regularly meets with international business leaders to bang the drum for Britain and highlight that we are open for business."

A report published last week by the World Economic Forum echoed the sentiment expressed by some of those present at the Downing Street talks.

It said: "The strain on many government balance sheets, coupled with several high-profile regulatory decisions, has positioned political risk - and specifically renegotiation risk - as a critical concern for many investors in developed and emerging markets."

None of the investors who attended the meeting and who were contacted by Sky News would comment.

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