(Reuters) – Six asset managers will put about 9 billion pounds ($14 billion) over the next five years into high-yielding investments in British companies, schools and roads following tax changes, a funds industry body said on Thursday.
British finance minister George Osborne announced on Wednesday that interest accrued on private placement investments, a form of long-term, non-bank debt financing for smaller firms and infrastructure projects, would be exempt from withholding tax.
Allianz Global Investors, Aviva, Friends Life, Legal and General, Prudential and Standard Life – all fund management arms of insurers – intend to make investments totalling around 9 billion pounds in private placements and other direct lending to British firms, the Investment Management Association (IMA) said.
“This (tax) measure, announced yesterday in the Autumn Statement, is a significant boost to the development of the UK private placement market, unlocking crucial capital for UK businesses,” said IMA Chief Executive Daniel Godfrey.
Insurers and pension fund managers are keen to invest in such long-term investments as they match their long-term liabilities in pensions and savings.
The illiquid nature of the infrastructure projects gives them higher yields than long-term government debt, but asset managers complain a shortage of viable projects has made this a crowded trade, reducing returns.
Osborne said the fund managers’ decision would attract further investment to Britain and increase credit to companies.
“This also signals the potential beginnings of an enduring private placement market for the first time in the UK,” Osborne said in a statement.
The European Union’s financial services chief Jonathan Hill is due to announce plans for a capital markets union (CMU) that is expected to include initiatives to boost private placements in a bid to reduce the region’s reliance on banks for funds.
“Compared to the stability and depth of its U.S. counterpart, the European private placement market remains in its infancy, so will need continued careful nurturing to achieve its full potential,” said Deborah Zurkow, chief investment officer for infrastructure debt at Allianz Global Investors.
Allianz said it would invest upwards of 3 billion pounds over the next three to five years in UK infrastructure, with 600 million pounds invested by the end of 2014. It said it would invest in projects including roads, schools and hospitals, and water and energy assets.
Aviva said it would make an immediate allocation of 500 million pounds in British infrastructure, following a 500 million pound allocation made a year ago.
Friends Life, which this week agreed to be taken over by Aviva in a 5.6 billion pound deal, said it had already allocated over 1 billion pounds to private placements, including a 500 million infrastructure mandate, and the tax changes would enable it to carry out more deals.