July 17, 2012
How to effectively attract interest and investment from sovereign wealth funds still remains a hurdle.
Attracting the attention of sovereign wealth funds is a major focus for many cities in the post crisis environment. One city, Birmingham, has decided to make this a major focus of its efforts. As Mike Whitby, former leader of Birmingham City Council, accurately recognised at MIPIM 2012, “In the current economic climate, finding the funding needed for ambitious development projects can be challenging. Sovereign wealth funds have the means, liquidity and long-term vision to support such investments.”
While cities may be aware that sovereign wealth funds are able to provide a potential solution to plugging their development investment gaps, the question of how to effectively attract interest and investment from these funds still remains a hurdle for many.
Within the UK, the case of Birmingham offers a number of useful lessons regarding how this investment may be facilitated.
The city must have a strong long term vision
In order to attract sovereign wealth funding, cities must create attractive investment opportunities which fit into a long term vision. Ad hoc and sporadic investment propositions are unattractive to potential investors as they are often self serving and the investment return is often unclear.
In Birmingham, for example, the city’s sovereign wealth fund prospectus complements the current city centre Masterplan, the Big City Plan (BCP). This long term vision allows investors to see the scale of the city’s plans for development over the next 20 years and realise the significant return on investment that Birmingham offers.
The transformation laid out in the BCP will see the addition of a new library, the £600m transformation of New Street Station, as well as the creation of an additional 50,000 jobs and the construction of 5,000 new homes. It is emphasised that this transformation is already being undertaken, which is an inherently more attractive offer to sovereign wealth funds.
A city must show active collaboration between the public and private sector
When making a decision to invest, sovereign wealth funds are eager to see an established strong, collaborative relationship between the public and private sector.
Collaborations such as Birmingham’s Enterprise Zone demonstrate that the public sector is committed to seeing the private sector thrive. Business rate discounts of £55,000 per annum per business, investment in infrastructure through the retention of business rate uplift for 25 years, the simplification of planning procedures and the accelerated roll out of ultrafast broadband all demonstrate that the city is dedicated to working with the private sector in order to contribute to overall economic success.
Showing commitment through investing and sharing the risk
This commitment can be demonstrated in a variety of forms, but essentially sovereign wealth funds like to see city’s committing to investment as it provides greater security, investor confidence and ultimately shares the investment risk.
In Birmingham, for example, this commitment has manifested itself in the form of infrastructure investment. Over the past five years, the city has fought for, and won, an unprecedented £6 billion of public infrastructural investment. By creating the right environment for commercial growth, Birmingham has demonstrated that it desires a reciprocal investment relationship, one which benefits both parties equally.
IMAGE: Flickr Leshaines123