BR Guide Second Edition

FINANCIAL SERVICES The world economic crisis of 2008 and legislation that followed left a void in the lending sector as banks pulled back from making riskier loans to smaller borrowers for smaller amounts. This has left a space for specialist lenders, something that some BR managers, including TIME Investments, are experienced in. Usually asset-backed, these loans may provide greater liquidity than the activities of holding and exploiting assets as there is typically a constant stream of maturing loans throughout the year. Given funding restrictions such as the removal of traditional EU routes, as well as political and economic uncertainty, opportunities are likely to continue to arise and not necessarily with an increased risk profile. But expertise is required to ensure valuations are realistic and that LTVs (loan-to-value) are conservative. Robust underwriting processes along with strong initial research and analysis are essential. For construction finance and bridge lending, the covenants of contractors remain just as important as those of the developers, so keeping on top of all parties is critical. A focus on the total cost of the lending to the borrower will help to provide a benchmark for the level of risk being taken. ENERGY GENERATION Energy is an essential commodity and the UK currently imports over a third of its energy needs. Leaving the EU is likely to change the basis on which the UK imports energy from the EU, reducing the efficiency of the system and ultimately leading to higher prices, putting UK energy providers in a stronger position to make up the UK’s energy shortfall. Reports suggest that investment needs in the UK’s electricity sector will be higher over the next decade than over the last two decades, due to both capital stock upgrades and the UK’s decarbonisation plans. Renewable energy investments, with their predictable, long-term revenue from government incentives, lower risk and moderate returns, remain BR qualifying. Our sponsor, TIME Investments, has been making BR- qualifying renewable energy investments for a number of years, with a focus on wind and solar. These factors are likely to drive demand in the secondary market. However, investors require an expert understanding of potential legislative changes and how they might affect the UK energy market and energy investments. Investors should also focus on the level of borrowings against the assets to assess the level of risk being undertaken in this trade. INDUSTRY & INFRASTRUCTURE This is a fairly wide-ranging category which benefits from constant, ongoing requirements such as those for roads, power stations, bridges, building materials and the like. Managers are generally looking for lower risk assets that can provide predictable income and growth and are non-contentious (so are not securities, buildings, land or making/ holding investments). TIME Investments has found these in its forestry and self-storage BR investments. Both benefit from strong demand drivers connected to the growing UK and global populations and the need for building materials and additional space. The European Investment Bank (a long-term investor in UK infrastructure) is likely to stop funding UK infrastructure projects after Brexit, leaving a funding vacuum. The role of the private sector is therefore increasingly important and while the sector enjoys relatively predictable profitability, ongoing knowledge of regulatory matters and their potential effects on infrastructure projects is essential. MEDIA & ENTERTAINMENT Films, television and games are embedded in popular culture and their attraction as a distraction from the worst of times makes this sector an interesting diversifier. The film industry, for example, has a history of not following standard economic cycles, with box office gross takings rising during five of the last seven economic downturns. The reputation of UK content for quality and the advantage of the English language making sales to America or other English speaking nations straightforward, put UK companies in a good position. There is serious demand for content to meet globally expanding appetites for film, TV, computer games and music through ever-expanding platform options. Improving connectivity and the continued growth in smartphone use are likely to drive demand for media content in developing markets, not to mention big increases in the middle classes and the relatively high proportion of young people in their populations. The secondary market for investments in media and entertainment may be subject to less liquidity than others with similar return levels. 33 BR INVESTMENT OPTIONS 32 BR INVESTMENT OPTIONS