Cressida Hogg says there is little political resistance in the UK to international investors in major infrastructure projects. Nick J B Moore / for China Daily

China's sovereign wealth fund has potential to be global leader, expert believes

Only Chile would perhaps be as welcoming to Chinese investment in major infrastructure projects as the UK, says one of the sector's biggest investors.

Cressida Hogg, the 42-year-old manager partner of infrastructure for 3i, the private equity giant, insists the British public are comfortable with overseas investment in essential services.

"We are very unusual across the world in that. Only somewhere like Chile would be comparable in that level of the privatization of its utilities."

Hogg is responsible for 3i Infrastructure, the publicly quoted company which invests in infrastructure assets and which she steered on to the London stock market in 2007. It now has a market capitalization of 1.05 billion pounds ($1.65 billion, 1.19 billion euros).

She believes there are obvious reasons why China Investment Corporation (CIC), China's $410 billion sovereign wealth fund, is interested in investing in UK infrastructure.

"It is because it can make a good inflation-linked return and generate cash. The other reason why it is particularly attractive in the UK is that the regulatory regime will reward people who manage their businesses well and allow them to make profits," she says.

UK infrastructure has been the subject of international focus as a result of UK Treasury figures saying that it needed 200 billion pounds of investment in energy, water, transport and other projects by 2015.

Hogg says the group maintains close contacts with the Chinese, and representatives of CIC have visited its offices in London.

"We have had dialogues with CIC in other areas and I know from the conversations I have had with my colleagues who look after our fund investor relations, that CIC is increasingly interested in infrastructure," she says.

"I don't think I found it surprising the CIC has an appetite for investing in UK infrastructure and I think it is very welcome news to the UK government," she says.

3i, which was originally formed after World War II by the Bank of England to provide much-needed funding to cash-strapped UK businesses, has strong links with China.

It was one of the first private equity companies to enter the country in 2001 and now has three offices there, in Beijing, Shanghai and Hong Kong.

Last year, as part of a pilot program being operated by the Shanghai government, it was the first European company given permission to launch a yuan-denominated private equity fund.

Hogg believes the Chinese have made a number of investments in infrastructure funds in the UK and across Europe already.

"There is a lot of anecdotal evidence to suggest they have invested in some of our competitors' funds. I am sure they have invested in a number of unquoted LP (limited partnership) funds that invest in infrastructure assets," she says.

She admits, however, there has been no major Chinese investment so far in 3i Infrastructure, despite it securing a total shareholder return of 53 percent since its IPO five years ago.

"My big investors are people like the investor BlackRock, BT (British Telecommunications) pension fund and people who invest mostly in UK public limited companies," she says

Hogg says there is little political resistance in the UK to Chinese or other international investors investing in major infrastructure assets, unlike in the United States.

She believes the controversy over Dubai Ports World taking over six US ports as a result of its acquisition of the British firm P&O, would be alien to the UK culture. These ports eventually had to be sold to an American company.

"I don't think there is specific resistance in the US to Chinese investment. The most celebrated kickback against foreign investors was when Dubai Ports took over P&O. Sept 11 was very fresh in the mind then and public opinion said they didn't want Middle East investors taking control of core port assets," she says.

The CIC bought an 8.68 percent stake in Thames Water in January and many of Britain's utilities have varying degrees of foreign ownership.

"I think even if you asked the average Financial Times utilities journalist what proportion of UK utilities was still in UK hands, I don't know what the answer would be but I bet it would be miles off the truth. I wonder about press and public awareness," she says.

Hogg says there has been little or no reaction from the public to Hong Kong billionaire Li Ka-shing buying up UK infrastructure assets.

His company Cheung Kong Infrastructure Holdings Ltd (CKI) acquired Northumbrian Water Group, the water company in the northeast of England, for $3.9 billion.

His other flagship company Hutchison Whampoa owns the UK's busiest container port at Felixstowe and also Harwich.

CKI also bought EDF Energy Networks, which operates the electricity distribution of the southeast of England, for $9.1 billion in July 2010.

"I think it is bizarre. The media gets hung up on so many things but 9 million who switch the lights on every day around London with the distribution network being bought by an 84-year-old businessman and there is no comment at all," she says.

Hogg, daughter of the industrialist Christopher Hogg and who is also related through marriage to the late Princess Diana's stepmother Countess Raine Spencer, studied philosophy, politics and economics at Oxford before working for American investment firm JP Morgan.

She joined 3i in 1995 and spent 10 years on general private equity investing before specializing in infrastructure.

She believes the UK government is exploring a different funding model in which it is likely to want investors to take on more of the construction risk instead of seeing infrastructure purely as a safe income-yielding asset.

Private investors didn't come on board the Channel Tunnel Rail Link, for which work began in 1996, until November 2010, long after it had become operational.

It was sold on a 30-year license to two Canadian pension funds, Borealis Infrastructure and the Ontario Teachers' Pension Plan, for 2.1 billion pounds.

For the next section of high-speed rail, the HS2 link from London to Birmingham, the UK government is keen to get private funding on board right from the start.

"I think in the future the government would like private investors to be more prepared to fund the construction phase and take the construction risk. I think where most private investors struggle with this is that this risk is not clearly defined and from their point of view it has the potential to become an uncapped liability," she says.

As far as China is concerned, Hogg is convinced the CIC is right to look at infrastructure as an asset class for long-term investment.

"The CIC has the potential to be the most powerful investor in the world and that is just one pot of money (the Chinese have at their disposal). It already is becoming the most powerful investor in many parts of the world," she says.

(China Daily 02/17/2012 page6)