pounds 100m private finance fund established

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Prisons, hospitals and roads are among the possible investments for a new pounds 100m City fund announced yesterday.

Innisfree PFI Fund said yesterday that it hoped to participate in up to pounds 4bn of projects under the Government's private finance initiative. It claimed to be the first investment vehicle set up specifically to invest in PFI projects.

The fund has raised pounds 50m initial capital from two leading investment institutions, Hermes Investment Management, which is acting as sponsor, and AMP Asset Management. The plan is to raise the same again from other institutions by April.

Roger Brooke, chairman of Innisfree, said the new fund could eventually participate in pounds 3bn to pounds 4bn of the pounds 26bn of projects the Government has said could be included in the PFI.

Innisfree has drawn up a list of 45 PFI projects worth almost pounds 4bn which it describes as potential investment opportunities.

They include two pounds 70m prisons, at Bridgend and Fazakerley, the pounds 250m Civil Aviation air traffic control centre, the pounds 100m Edinburgh Royal Infirmary project, the pounds 190m A1-M1 link road and the pounds 200m refurbishment of the Treasury building in Whitehall.

Mr Brooke, who is also chairman of the management buyout firm Candover, said the plan was to invest up to 25 per cent in the equity of consortia set up with construction and other specialist companies involved in PFI work. Because the consortia tended to be highly geared, with most of the finance from bank loans rather than equity, the initial pounds 50m could generate pounds 1.5-pounds 2bn in project value, and twice that if the fund reaches its pounds 100m target, he said.

The Treasury has been heavily criticised for a slow start to the whole PFI programme, and one of the many factors blamed for this is a shortage of capital among construction and civil engineering companies to invest in new projects. The Treasury said it welcomed the new fund.

Alistair Ross-Goobey, head of Hermes, is a member of the Treasury's private finance panel, which advises the Government on the PFI. Matthew Webber, an executive director of Innisfree, was seconded to the private finance panel last year from Kleinwort Benson.

David Metter, chief executive of Innisfree, said investments would be in projects worth between pounds 25m and pounds 400m.

He said PFI projects for the most part relied on well understood technologies and construction methods where risks were readily identifiable.