John Laing says investors are turning to infrastructure funds

RECORD low interest rates and poor returns from gilts and bonds are driving investors to look for alternative sources of steady returns, setting the scene for a golden age for infrastructure investment.

The prediction comes from Olivier Brousse, chief executive of John Laing Group, the FTSE 250 business that invests in infrastructure projects around the world, ranging from power generation to prisons, and stadiums to rail rolling stock.

Global population growth and climate change means there is a growing need for infrastructure, and economic conditions in the UK make the country a prime target for new investments.

Speaking as John Laing posted interim results, which showed the key measure of net asset value had risen by 8.3pc to £963.7m, Mr Brousse said: “Public private partnership investment has been subdued for some time but it is now finally growing. You can delay building new infrastructure for only so long and the need is here.

“We need more transport capacity; the recent floods show we need to build protection from them; and the next rough winter will show that capacity in the energy sector is critical.”

Combined with poor returns from traditional assets and low interest rates, investors are increasingly interested in infrastructure, Mr Brousse added.

“The shift in monetary policy has achieved what it can achieve so now a shift in fiscal policy will see more focus on infrastructure spending,” he said, referring to indications from the Government that it will spend money on new road, rail and energy projects to stimulate the economy.

Patrick O’D Bourke, finance director, added that the company was seeing more interest from investors who are turning away from assets such as gilts because of their low returns. These assets at lower rates of return cause the “discount rate” – the speed at which the value of a long-term investment unwinds – to ease, effectively making infrastructure projects more valuable.

As an example of the sector’s newfound attractiveness to pension funds, Mr Brousse pointed out that Lego’s retirement scheme has invested in offshore wind farms.

The interim results, covering the six months to end of June, showed pre-tax profit leapt from £32.6m last time round to £108.3m, though this was largely down to currency swings, with a £49m boost this year offsetting the £29m hit taken a year ago.

The dividend was increased from 1.6p to 1.85p. Shares rose 7.5pc to close at 254p yesterday.