Veronica Vecchi

Does the private sector receive an excessive return from investments in health care infrastructure projects? Evidence from the UK.

This paper is concerned with the cost-efficiency of Private Finance Initiatives (PFIs) in the delivery of hospital facilities in the UK. We outline a methodology for identifying the fair return on equity, based on the Weighted Average Cost of Capital (WACC) of each investor. We apply this method to assess the expected returns on a sample of 77 contracts signed between 1997 and 2011 by health care provider organisations in the UK. We show that expected returns are in general in excess of the WACC benchmarks. The findings highlight significant problems in current procurement practices and the methodologies by which bids are assessed. To minimise the financial impact of hospital investments on health care systems, a regulatory regime must ensure that expected returns are set at the fair rate.

Are Italian healthcare organizations paying too much for their public–private partnerships?

Italys health service—the Servizio Sanitario Nazionale (SSN)—has developed Europes second largest market for healthcare public–private partnerships. This article describes the origins of private finance for SSN infrastructure, examines the programmes scale and key characteristics, and provides a capital budgeting analysis of rates of return on 14 privately financed schemes. Excess returns are being made by the investors in these projects, and there is potential for SSN procurers to achieve significantly better value for money for the Italian people than has been the case to date.

Securing a Better Deal From Investors in Public Infrastructure Projects

Abstract The return on capital is a major contributor to the cost of design, build, finance and operate (DBFO) contracts, under which public infrastructure is financed and delivered by private companies. The article presents a method for evaluating the rates of return targeted by bidders and applies this to 10 contracts commissioned by the UK National Health Service. The presence of significant excess returns is identified in each case. We argue that, if the rate of return projected by an investor exceeds a benchmark cost of capital, derived using standard capital budgeting techniques, then a reduction in the fee to be paid by the public authority is justified.

Determinants of the cost of capital for privately financed hospital projects in the UK

Many governments make use of private finance contracts to deliver healthcare infrastructure. Previous work has shown that the rate of return to investors in these markets often exceeds the efficient level. Our focus is on the factors that influence that return. We examine the effect of macroeconomic, project- and firm-level variables using a detailed sample of 84 UK private finance initiative (PFI) contracts signed between 1997 and 2010. Of the above variables, macroeconomic conditions and lead sponsor size are related to the investor return. However, our results show a remarkable degree of stability in the return to investors over the 14-year period. We find evidence of a prevailing norm that is robust to project- and firm-level variation. The sustainability of excess returns over a long period is indicative of a concentrated market structure. We argue that policymakers should consider new mechanisms for increasing competition in the equity market, while ensuring that authorities have the specialist resources required to negotiate efficient contract prices.

Government policies to enhance access to credit for infrastructure-based PPPs: an approach to classification and appraisal

Governments across the world have introduced a variety of instruments to enhance private investors’ appetites for public–private partnership (PPP) projects. The use of such instruments has become a core component of development and growth policies, for example by the EU as part of the Junker Plan. This paper provides a comprehensive categorization of these instruments, the risks they target and their effects, at both the project and system level, to support policy-makers to design the most appropriate instruments to attract private capital into infrastructure development.

Impact Investing: A New Asset Class or a Societal Refocus of Venture Capital?

Impact investing is the current trend, and it is garnering an increasing attention from society, institutions, and businesses. From one side, actually, contemporary society is looking at impact investing as a new paradigm to cope with the economic crisis and the curtailed public budgets and answer to the more and more diversified needs of its citizens. From the other side, private investors are searching for new investment opportunities to channel the enormous liquidity available. Globally, indeed, private wealth has never been so high: in 2013 total global financial assets grew to US

Attracting Private Investors: The EU Project Bond Initiative and the Case of A11 Motorway

225 trillion, tripling the world’s GDP (McKinsey Global Institute 2014), even if only 22 percent of them are represented by equity investments, whose CAGR in the period 2007–2012 was -5.5 percent; high-net-worth individuals’ (hereafter HNWIs) financial wealth reached its peak of US

Assessing the Cost of Capital for PPP Contracts

52.6 trillion worldwide in 2014, of which 13.5 percent is invested in alternative assets, with an increase of 3.4 percent from 2013 (Capgemini 2014). It is also important to notice that driving social impact is important for 92 percent of HNWIs; this trend is lead by younger investors (under 40 years) and by those located in emerging markets.

The Key Element of PPP: Risk

Infrastructure development is one of the main priorities of governments across the world: infrastructure are undoubtedly a catalyst for economic growth, but the gap between needs and actual provision is still wide, and it may affect the competitiveness of countries.

Public-private partnerships: Recent trends and the central role of managerial competence

This chapter outlines the theoretical frameworks and practices used by firms to estimate the appropriate rate of return on their investments in healthcare PPP projects. Our aim is to outline the appropriate method for assessing the “reasonableness” of returns, drawing on capital budgeting theory. We focuse on estimates of the cost of capital for the direct investor of primary equity in the SPV. In other words, we are interested in the rate of return that directly affects the bid and contract price, because this is the price that is ultimately be paid for by the users of the infrastructure or technologies to which the project relates. The cost of equity is, in this sense, an important variable in the financial appraisal and value-for-money analysis for the PPP.