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An interview with Dalmore Capital

Alistair Ray
Alistair Ray
Chief Investment Officer (CIO) and Co-founder

Dalmore Capital is a fund manager overseeing GBP 5bn of assets in the UK and investing  in over 140 infrastructure projects.

“The politicised climate may lead to some investors looking to exit which will produce opportunities within the UK market.”

The UK infrastructure market has been shrouded by indecision as all political focus remains on Brexit, but Ray still sees ongoing activity, particularly in non-regulated assets. What should be of interest to investors, according to Ray, is whether limited government activity in procuring greenfield investments in recent years will “build up in the future” and if new models replacing PPPs would be considered suitable investments with attractive returns.

Nationalisation plans from the Labour party are adding fuel to fire, as regulatory clampdowns pose challenges for the UK’s regulated infrastructure assets, heralding skinnier returns.

To overcome the ambiguity, Ray places his belief in the highest quality regulated assets, stating, “If you are invested in the top performing companies like Anglian Water and Cadent Gas, then through them providing good operational performance to the customers you will do well as investors.”

However, unlike stifled greenfield opportunities, the secondary market will be largely determined by a politicised climate that is making foreign investors hesitant.

“The politicised climate may lead to some investors, particularly from overseas, looking to exit which will produce opportunities within the UK market. And it may be that some of those opportunities are less competitive than they have been in the past because of fewer bidders,” he adds.


Future models

Under the Bazalgette consortium – also featuring Allianz, Amber Infrastructure, DIF, International Public Partnerships and Swiss Life Asset Management – Dalmore Capital utilised the regulated asset base (RAB) model uniquely in the GBP 2.3bn Thames Tideway deal. According to Ray, Thames Tideway is an excellent example of a financing structure that benefits all project participants by “positioning risk with the parties that are best able to take it”. 

“It became financeable because infrastructure investors were asked to take the risks that they were able to manage around procurement, around financing but also due to being able to share other risks – which we had less control over – with the other participants to ensure that all parties were incentivised to manage such risks,” concludes Ray. 

RAB is ordinarily used to govern utilities, after emerging as a method of valuing existing UK assets during privatisations. Interests have arisen in applying it to new greenfield opportunities such as nuclear. In 2018, the Department for Business, Energy and Industrial Strategy announced that the viability of RAB for nuclear was under review. A public consultation closed in October 2019. 

To Ray, the significant investment size and the fact that new nuclear power stations are currently a core government policy makes the nuclear sector interesting to watch.

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