Dalmore Capital has told the Competition and Markets Authority that there is “a real sense of nervousness from our UK-based investors in investing in UK regulated utilities”.

The comment comes in the independent fund management company’s response to the latest stage of the CMA’s ongoing inquiry into appeals by four water companies against Ofwat’s Final Determinations on their AMP7 business plans.

With a total of £5 billion assets under management on behalf of institutional investors, Dalmore represents the interests of UK and overseas investors, including over 1.3 million UK pension holders.

This includes investment in Anglian Water, one of the appellant companies. The fund manager has also invested over £400 million in the Tideway Tunnel.

Dalmore says in its submission:

“Overall, the characteristics of the regulated sector make it an appropriate investment opportunity for many of our investors. However, the recent sharp reduction in returns and perception of increased regulatory risk has had a real impact on investment appetite.

“We have seen significantly reduced interest from our overseas investors and a real sense of nervousness from our UK-based investors in investing in UK regulated utilities.”

Describing Anglian Water’s Statement of Case as well-evidenced, in the fund manager’s view, further movement in Cost of Capital and Totex allowances were justified beyond what was provided in the CMA's Provisional Findings.

It recognises the appeals process was “robust” and the CMA had “carefully considered the evidence and arguments” in arriving at the Provisional Findings. However, it went on to express its concern about the additional changes subsequently proposed by the CMA to the allowed Cost of Capital in its most recent consultation, commenting:

“The proposed changes would lower returns below what we consider an appropriate risk-adjusted level, negatively impact financeability and are generally not supported by new data or evidence.”

The letter emphasised that during the AMP7 engagement process, where over 500,000 were consulted, Anglian’s customers clearly said they want to see increased investment to address urgent climate change issues over further bill reductions.

“The additional challenges of COVID-19 and Brexit are likely to only increase the requirement for private investment in UK infrastructure", the letter says.

“It is therefore imperative that the regulatory framework supports this investment, now and in the future. Ensuring a fair and appropriate Cost of Capital is central to this aim and we would urge the CMA to reconsider the position in its Consultation and move back to the position set out in the Provisional Findings,” Dalmore Capital concludes in its submission.

Click here to read Dalmore Capital’s submission in full.