BR Report 2019

Considerations for investment / Sector focus Considerations for investment / Sector focus 34 35 INFRASTRUCTURE The requirement for infrastructure is consistent. The need for roads, power stations, bridges and the like does not dissipate, no matter what the backdrop. But, any disconnection with the European Investment Bank (a long-term investor in UK infrastructure), an inevitable consequence of Brexit, will leave a funding vacuum. The role of the private sector is therefore increasingly important and the government hopes to encourage further private investment in infrastructure; of the projected £600 billion infrastructure investment pipeline for the next ten years, half is forecast to come from the private sector 26 . MEDIA & ENTERTAINMENT People will continue to watch films and television and play games. With the reputation of UK content for quality and the advantage of the English language making sales to America or other English speaking nations straightforward, UK companies in this sector are well-placed. Hi-tech solutions have made content production cheaper and there is serious demand for content to meet globally expanding appetites for film, TV, computer games and music through ever-expanding platform options. In fact, more time in the UK is now spent using media and communications than sleeping, proving it has become a vital part of our lives. In addition, many sectors in Media and entertainment have the potential for very long tails. In other words, whilst there are upfront costs of production, the income stream generated is more than a one-off hit. Instead, downloads, re-releases, associated book and video sales, multiple attendances, additional airings, sales of merchandise and new formats can drive ongoing revenue. This gives content shelf life and takes some of the pressure off initial sales. So, even if it means that investment capital and returns are paid over a longer time frame, they have a greater chance of being paid. As a market which does not follow standard economic cycles, Media and entertainment is also an impressive diversifier. Take the film industry where box office gross takings rose during five of the last seven economic downturns. It’s still worth considering the potential effects of leaving the EU which might impose restrictions on the easy distribution of UK content in the European single market. This could lead to diminished demand in certain countries for UK content as it will not qualify as EU content for local quota purposes. Any tariffs imposed on UK-distributed content could also impact the competitiveness of pricing and squeeze margins. However, 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. DIVERSIFICATION, DIVERSIFICATION, DIVERSIFICATION! So, there are still some great indicators of where future success could lie and careful research and analysis of these areas is key. But, diversification has always been an important element of any investment portfolio. And with a melting pot of international turbulence undermining investor confidence and political stability, it’s even more essential to select a range of investment managers and sectors. While these are massive numbers, the average project size is £329 million 27 , affording the involvement of smaller funding providers. And the mid to long-term figures suggest it could be well worth their while; according to FE data, every single open-ended and closed-ended infrastructure fund with a long-enough track record has outperformed the MSCI AC World index over the last 12 months - a period of markedly high volatility 28 . Marry that with relatively predictable profitability and you have an attractive sector. Advisers should be mindful though, that infrastructure managers must be experts on regulatory matters and changes that strongly influence what is going on within their projects. ”We see the infrastructure funds sector as a potential safe haven for investors, with relatively ”risk-free” income from governments.” — MACQUARIE 29 FUNDING MIX OF THE PIPELINE 2019/19 TO 2020/21 BY SECTOR (£BN) SOURCE: 2018 NATIONAL INFRASTRUCTURE AND CONSTRUCTION PIPELINE, INFRASTRUCTURE AND PROJECTS AUTHORITY, 2018 Food and coastal erosion Science and research Digital infrastructure Social infrastructure Utilities Energy Transport £0 £30 £10 £40 £20 £50 £60 CENTRAL GOVERNMENT PRIVATE LOCAL GOVERNMENT MIXED FUNDING