Ericsson announced on Wednesday that it had been selected by BT Group to provide 5G radio equipment in major UK cities including London, Edinburgh, Cardiff and Belfast.

The completion of the contract will see 50% of BT’s 5G communications transmitted via the Ericsson Radio System kit, the telecommunications company estimated. The move will allow BT to ditch Huawei without becoming fully reliant on Nokia, its other radio access network equipment provider.

In addition to providing 5G radio equipment, Ericsson said it would “modernise BT’s existing 2G and 4G Radio Access Network” to improve its performance for BT customers.

“BT has a clear direction in how it wants to drive its 5G ambitions in the UK,” Ericsson president and CEO Börje Ekholm said in the press release, adding that the contract would strengthen the relationship between the two countries. “By deploying 5G in these key areas, we are yet again demonstrating our technology leadership in population-dense and high-traffic locations.”

Ericsson’s equipment has been used widely as part of 5G infrastructure. The company has said that it currently holds 113 commercial 5G agreements and contracts with communication service providers worldwide.

In July, following the imposition of US sanctions against Huawei, ministers announced that UK providers must stop purchasing 5G-related equipment from the Chinese telecom giant after 31 December, and must completely remove its technology from their infrastructure by 2027.

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Huawei has denied that its equipment poses a threat to national security. Earlier on Wednesday, it released a report claiming that its UK ban could cost the country thousands of jobs and upwards of £100 billion in economic benefits resulting from a slower rollout of 5G.

Details of Ericsson’s contract with BT have not been disclosed.

Professor of Corporate Finance, Sophie Manigart, and post-doctoral researcher, Thomas Standaert, found that governments that invested but had no input were more successful in stimulating growth in companies and providing more resources to the private risk capital market.

Whereas, the researchers found that governments that invest directly in a company and have complete control of all of the decisions tend to yield the poorest results. Businesses that raised funding this way did not grow faster than companies that raised no funding at all.

The research findings came from a previous study on both literature on government investments, but also from a dataset of 345 Venture Capital funds established between 1996-2017. The researchers analysed how a number of European companies developed after receiving venture capital through four different models, ranging from full government control, to government investment, but independent decision-making. The researchers compared the performances of each firm, up to five years after the initial VC investment.

The four key investment models that the researchers analysed were:

1. Direct and solitary – where a government invests directly in a target company and all decisions are made by the government
2. Direct but in partnership – the government invests directly in target companies, but in partnership with private investment funds
3. A passive government role – the government co-invests in target companies with private players who take all decisions. The government plays a passive role and is hands-off when it comes to most investment decisions; the government merely follows the private sector.
4. A government invests in a fund-of-fund and does not mingle in investment decisions – this goes a step further than the third model by having governments invest in private funds that are managed entirely by equally private fund managers.

Professor Manigart says: “Government intervention in the risk capital market is needed in Europe and worldwide, but governments should respect the role of private players and not become dominant decision makers. Governments who simply provide this funding, but let the firm work independently and autonomously are much more likely to see growth, which can only be a benefit for investors, the firm, and customers alike.”

"Governments who simply provide this funding, but let the firm work independently and autonomously are much more likely to see growth, which can only be a benefit for investors, the firm, and customers alike.”

The researchers state that governments need to apply the fourth method more often in order for the target companies to be more innovative and successful. A good example of this model being implemented successfully is the Canadian government, who pioneered this model with the launch of the Venture Capital Action Plan, which has resulted in over $900 million in private investor capital being added to the ecosystem.

Government aid is genuinely effective for businesses, even companies like Apple and Tesla would not have survived without government funding. If there’s no financial help, then it could be argued that there would be no high-tech developments and innovations in society. Therefore, it is important that governments look to invest in the most effective way possible for growth in these companies, so that high-tech, social projects and high-employment companies have the greatest chance of growth and survival.

Last year, the United Nations declared that 55% of the global population lives in cities. By 2050, it is predicted to increase to 68%. Population increase is widely recognised as the primary cause of this.

North America and Europe are among the two most urbanised areas in the world. The UK has seen massive growth in terms of urban dwellers, with Liverpool’s population growing by 181% between 2002 and 2015.

How will cities cope with a continuous growth in residents? Smart City planning could provide the solution. Using technology and data, local authorities across the globe are working to create dependable infrastructure for urban areas. And many designers have started to include blockchain in the process.

Below, we list the main reasons why.

Transparency

Blockchain records are unalterable – any transaction details can be viewed with complete transparency. Equally, private accounts are only accessible for cryptographic key holders. Both aspects can benefit any investor – especially one that wants to outsource to a third party.

Take local authorities and governments, for example. In hiring architects and labourers that buy through blockchain, they can see exactly where money goes. And so, it could maximise asset management.

In addition, project leaders will be able to measure costs against plans. With the ability to do this throughout the process, high costs can be avoided immediately. Payment documents could be used to reduce spending in the future, too.

Blockchain’s transparency can simplify the process of city planning – and could make it a great deal smarter.

Infrastructure

The term “Smart City” applies to all aspects of a metropolis, from infrastructure to public services. In regard to the latter, easy access to blockchain advice centres could be immensely helpful for many city residents.

The digital ledger has become popular with several people in the UK. In December 2018, 32 million Britons were reported to own Blockchain wallets. And this amount could very well increase. Some experts even describe this as the answer to all money problems.

City authorities looking to “Smart” plan, therefore, might want to take this statistic into consideration. Cities that supply blockchain help and information sources could make everyday transactions far easier for a lot of citizens.

In turn, this could strengthen the reliability of the city – one of the key principles of Smart City planning.

Property Industry

There are several advantages to living in a smart city. This is largely because it aims to offer straightforward daily services, from public transport to financial transactions.

The London Infrastructure Plan, for example, has been designed to enhance the ecological and economical effects of the capital, as well as its safety. Urban areas that are set for improvement often attract prospective property buyers.

If a local authority seeks to include new homes in its Smart city plan, blockchain records could entice investors. With full details on how living spaces have been built, people may be more inclined to invest.

And higher levels of investment could generate money for local projects and schemes that can benefit the city and its community.

Technology has already transformed how money is exchanged. And thanks to blockchain, it may revolutionise urban life throughout the world. Could this be a smarter way to spend than traditional payment methods? More to the point, will it determine how our living spaces are built?

So if you clicked this article because you want to know how much the literal world cup trophy costs, it’s currently estimated at a total $10 million, or in fact more than two human figures cast in 18 carat gold, but that’s not what this is about.

For the consumers, the ticket prices alone are eye-watering. Standard category tickets for the knockout stage matches set fans back around £2,458 ($3,249), while the group stages will have cost £2,631 ($3,477) combined. All in all, that’s around 22% of the UK’s average annual salary. Plus, flights at anywhere between £600 ($793) and £1,500 ($1,983) depending on where you are in the world, insurance at £41 ($54), and hotels at around £987 ($1,305) and counting, the cost of the world cup is a small fortune for any individual fans attending the competition.

However, the true cost of the world cup extends far beyond what most can imagine. If you take into account the cost on the host nations, the funds handled by FIFA and national football associations, the money lost in advertising, operations, infrastructure and accommodating resources for businesses worldwide, from an economic perspective the overall break-even after losses and profits is highly questionable.

This year companies in the UK witnessed a blackout the morning after some of the England games; employees just didn’t turn up to work. The estimated loss figure for employees ‘pulling sickies’ reaches £500 million ($661 million) nationwide. After the England Vs Columbia game, millions of football fans were expected to call in sick, and they did. While each individual case may seem like nothing much, all together, a £500 million loss in a day is a big hit for the economy. Realistically, other football fanatic nations may have suffered a similar fate the day after their respective teams played.

But the real cost of the world cup extends much further still, and its biggest catalyst, hosting the 32-nation tournament, touches a sensitive socioeconomic nerve. While the surge of a national team in the tournament can bring a much-needed economic boost, £2.6 billion is expected to flood into the UK economy should England reach the final on July 15th, the true cost of the World Cup is always counted in billions and can cause significant issues for the host country.

The 2014 world cup in Brazil was forecast to positively impact economies anywhere between $3 billion to $14 billion. The positive economic impact of the 2010 world cup in South Africa was estimated at $5 billion; the 2006 world cup in Germany at $12 billion and the 2002 world cup in Japan & South Korea at $9 billion. The 2014 brazil world cup was due to add an estimated $30 billion to Brazil’s GDP between 2010 and 2014.

From TV rights fees to sponsorships and ticket sales, FIFA made $4.8 billion in revenue from the tournament in Brazil, with an expense of $2.2 billion, most of which comprised funding to teams and TV production costs. $100 million of the expense was the legacy payment given to Brazil. This did not however cover the costs of building and renovating 12 stadiums and developing the appropriate transport infrastructure needed to host the world cup. The overall cost of this has been estimated at around $15 billion, most of which was public funded.

On top of this further costs incurred due to overruns, legacy concerns and missed constructions deadlines. Some of the stadiums remained unfinished or untested prior to the launch of the 2014 event. In addition, many protests erupted throughout the country calling out the troublesome impact of the world cup on day to day living in Brazil, from the way public transport was handled to the way policing was affected.

The harsh truth is that many of those stadiums remain unfulfilled and unused now. Sure, they were put to good use during the world cup in 2014, but in 2018 these stand desolate, while basic social services are underfunded and lack the capital for development. Billions in capital that could have not been spent on the world cup. One of the 12 stadiums built is the Arena da Amazônia in Manaus. Situated in the middle of the jungle, without a proper top-flight football team, a 45,000-seat stadium is unnecessary. In order to build this stadium, some parts had to be transported by boat through the Amazonian jungle.

To add to the frustration of Brazilians that year, their world cup team suffered a crushing 7-1 defeat against the Germans in the semi-finals.

After being selected to host the 2018 world Cup back in 2010, Moscow has aimed for Russia to stand out as a global superpower and host the world cup in order to benefit from a big economic boost in the long term. The results of the latter are still to be seen, though in terms of media coverage and PR, Russia has been doing pretty well, with many global fans claiming that from a social and economic stand point, Russia is a far better nation than most believe it to be.

We’re currently just past the half way line in the 2018 Russia world cup and the cost is already mounting. The overall cost of Russia hosting the world cup is reported at $14.2 billion, making it the most expensive in history thus far. Russian media channels report that most of this cost consist of repairs and renovation to existing airports and transport systems as well as building 12 new stadiums, 11 new airport terminals, 12 new roads and three new metro stations in the run up to the competition. To support these, further infrastructure such as hospitals, power stations, and hotels were also injected with cash. Clearly, Russia thought it had better odds than Brazil when it came to the long-term economic advantages of hosting the world cup.

In terms of sponsorships, of 34 potential slots offered by FIFA for the 2018 world cup in Russia, 19 were filled, mostly by Russia themselves, and China (despite not even having a team in the tournament) and Qatar. KPMG currently estimates sponsorships have made FIFA over $1.6 billion. Statista has estimated around 1,000,000 foreign fans to attend the games from the first kick off to the final whistle, with a further 2 million domestic fans in the mix. FIFA says around 98% of tickets were sold, but this hasn’t always appeared to be the case in some matches.

Once the world cup is over, it’s difficult to say whether Russia’s massive investment, the biggest yet, will reap long lasting benefits from hosting the competition. But if Brazil is to be an example, probably the worst of many, then Russia is arguably set to lose from the deal, at least financially. Although the injection of cash means they will have a few more hospitals and better airports in the long term, from a future football perspective the stadiums that were purposely built for the world cup will likely not bring much revenue back for Russia in years to come, leaving the expenditure as a substantial one-off outlay, albeit it for a very rich country.

At least high hopes still remain for the Russian football team in the 2018 world cup, as they face Croatia this Saturday in the quarter finals. If they win, maybe things will look a little brighter.

Sources: 

https://www.vanquis.co.uk/the-cost-of-the-world-cup-2018

http://www.cityam.com/288622/cost-football-coming-home-england-fans

http://theconversation.com/hard-evidence-what-is-the-world-cup-worth-27401

http://uk.businessinsider.com/fifa-brazil-world-cup-revenue-2015-3

http://www.businessinsider.com/brazil-world-cup-stadiums-2014-6?IR=T

https://www.theguardian.com/world/2013/jun/18/brazil-protests-erupt-huge-scale

https://www.bbc.co.uk/sport/football/30642071

https://www.cambridge-news.co.uk/news/uk-world-news/people-sickies-work-world-cup-14864331

https://www.fool.com/slideshow/games-cost-russia-14-billion-9-wild-world-cup-money-stats

https://www.forbes.com/sites/jamesrodgerseurope/2018/07/02/world-cup-2018-wins-for-russia-on-and-off-the-field/2/#7cab1dfb1e3b

https://uk.reuters.com/article/uk-soccer-worldcup-col-eng-penalty/this-time-england-left-nothing-to-chance-in-shoot-out-idUKKBN1JU1T6

https://www.bbc.co.uk/news/business-44711254

Dickerson Wright, PE, is the founder, Chairman, and CEO of NV5 Global, Inc. (Nasdaq: NVEE), an infrastructure engineering and environmental services firm with over 2,000 employees and 102 offices internationally. He has 35 years of uninterrupted experience in the engineering sector and previously founded US Laboratories, took it public, and sold the company to Bureau Veritas in 2002. Mr. Wright then served as CEO of Bureau Veritas US where he grew operations to $280 million in revenue. In 2009 he started NV5 (then called Vertical V) through the acquisition of Bureau Veritas’s construction quality assurance practice in the US and shortly after, the acquisition of Nolte Associates (the “N” in NV5). NV5 went public in March 2013 at $6.00 a share with a market capitalization of $25 million and today trades at $37.00 a share with a market capitalization of over $400 million.

Could you tell us a bit more about NV5 – how did it develop into the company that it is today? 

The roots of NV5 are really in our management team, which has been together over 20 years through the founding and sale of US Laboratories, through Bureau Veritas, and the founding of NV5. We’ve done over 50 acquisitions together in this time, and we believe in running a very flat, vertically structured organization (the “V” in NV5 is for vertical) where entrepreneurial leaders are given an opportunity to grow the specific business in which they are experts. We also believe in having partners, not key employees, so we drive stock very deep into our organization. NV5 has five service verticals: construction quality assurance, infrastructure, energy, environmental, and program management. We achieve organic growth by cross-selling our services among these verticals, so we are able to continually decrease sub-consultant fees by doing work in-house. We also grow through strategic acquisitions, which expand and deepen our service offerings within these five verticals. 

What goals are you currently working towards with NV5? 

We are aiming to reach $600 million in revenues by the end of 2020 and 12-15% EBITDA margins. We exited 2016 with 8% organic growth, which is well above the industry standard of 5% and we plan to keep growing organically through synergy, cross-selling, the scalability of our back office, and the integration of strategic acquisitions. The struggle, as our company gets larger, is to maintain a flat organization with many points of entry and resist the tendency of large companies to become organized geographically or in a matrix fashion. We don’t want our expert practitioners to become highly paid administrators. If someone is an expert in energy services, she or he should be working on expanding our energy services business, not running a region of the country that provides many services.

You have over 35 years of uninterrupted experience in managing and developing engineering companies - what have been your major achievements to date? 

I think over the years our team has developed a really strong business strategy that we’ve learned through trial and error, and so now our experience has taken us to a place where we are not perfect but we make very few errors. This is especially important if a company is as acquisitive as we are. We’ve become known in the space for doing deals in the range of $5 to $50 million, and we won’t do a deal if we don’t perceive a cultural fit - our culture is one of growth and value for our shareholders. We also insist on our shared services platform. The acquisition has to be on our financial and IT platforms, so we can measure and track everything the same. They have to use our in-house legal counsel, so we don’t take risks on big contracts or projects and risk is managed in every single contract. They have to use our HR services, because we want everyone to have the same benefits structure, to have an annual performance review, and to have the same opportunities to advance within our organization. And they have to participate in our M&A program. We often get some of the best leads from our operators. If any of these changes seems onerous or undesirable to the acquisition, we won’t do the deal. There are over 140,000 engineering companies in the US and we have as many deals as 10 in the pipeline at all times. There are plenty of opportunities and it is a very fragmented industry.

Website: https://www.nv5.com/

Cybersecurity and privacy issues, along with infrastructure management and emerging technologies, rank as the top technology challenges organizations face today, according to a just-released survey report from global consulting firm Protiviti and ISACA, a global business technology professional association for IT audit/assurance, governance, risk and information security professionals. The survey of 1,062 IT audit and internal audit leaders and professionals found that IT audit is also becoming more involved in major technology implementation projects within organizations.

In the survey, respondents were asked to name the top technology or business challenges their organizations face today. The top 10 responses:

1. IT security and privacy/cybersecurity
2. Infrastructure management
3. Emerging technology and infrastructure changes - transformation, innovation, disruption
4. Resource/staffing/skills challenges
5. Regulatory compliance
6. Budgets and controlling costs
7. Cloud computing/virtualization
8. Bridging IT and the business
9. Project management and change management
10. Third-party/vendor management

"It is no surprise to find security, technology infrastructure and emerging technologies atop the list of challenges that IT auditors see in their organizations," said Gordon Braun, a managing director with Protiviti and global leader of the firm's IT Audit practice. "Yet, we find the other challenges listed to be just as critical to companies, from resource and skills gaps to ongoing transitions to cloud and virtual networks. Additionally, as more and more organizations rely on third parties to support critical applications and infrastructure, the need to excel at managing vendor relationships has increased dramatically. Many organizations have not sufficiently addressed maturing their vendor management practices, and the resulting business risks can be significant."

According to the ISACA/Protiviti survey, titled A Global Look at IT Audit Best Practices, in large companies (greater than US$5 billion in revenue), 26 percent of IT audit functions have a significant level of involvement in major technology projects, while 45 percent have a moderate level of involvement. IT audit is most frequently involved in the post-implementation stages (65 percent).

"Seeing greater involvement by IT audit in significant technology projects is a positive trend, especially considering the dynamic nature of technology and critical risks related to security and privacy," said Christos Dimitriadis, Ph.D, CISA, CISM, CRISC, chair of ISACA's board of directors and group director of information security for INTRALOT. "This is also notable because a substantial percentage of IT projects tend to run over budget and behind schedule and fail to achieve the desired objectives. Having IT audit bring a mindset of risk and control to these projects can be highly advantageous."

Dimitriadis continued: "However, our results show that IT audit is more involved in the post-implementation stages of these projects versus earlier planning and design stages. We believe there is an opportunity for organizations to derive the most value from their major IT projects by engaging IT audit earlier rather than downstream in the projects. With a solid foundation of assurance on the front end, organizations can have the confidence they need to be innovative and fast-paced in pursuit of their business goals."

Greater Audit Committee and Executive Engagement

In a majority of organizations (55 percent), the IT audit director regularly attends audit committee meetings. This represents a 6 point jump from the prior survey results (published in late 2015) and reflects a long-term trend in the survey findings since 2012, when less than one in three IT audit directors attended audit committee meetings regularly.

"There's no question that cybersecurity and emerging technologies are now a regular topic at the board level," said Braun. "Audit committee members, in particular, are seeking greater assurance around critical IT risks and controls - internal audit and IT audit leaders must be prepared to demonstrate audit coverage of key areas and articulate where the highest risks remain."

Another notable trend is the growing number of IT audit leaders who are reporting directly to the CEO. While still not a large number (for example, 13 percent in North America, 26 percent in Europe), these figures, as well as those from other regions, represent notable jumps from the 2015 survey results. "It's possible that in at least some of these instances, the chief audit executive is serving as the IT audit director, which is positive to see in that it provides the IT audit function with greater executive and board visibility," said Dimitriadis. "This also is a logical development considering the increasing technology-dependence of organizations and the integral role the IT audit function plays in helping management identify key risks and ensure the proper controls are in place."

Risk Assessment Frequency

The Protiviti/ISACA study also found that among large companies, 90 percent conduct an IT audit risk assessment. However, a majority (55 percent) only do so on an annual or less-frequent basis. Considering the growing risk landscape resulting from cybersecurity threats and emerging technologies, ISACA and Protiviti suggest that more organizations consider an approach that includes continually reviewing the IT risk landscape and adjusting IT audit plans accordingly.

(Source: Protiviti)

SimCorp recently announced the results of a comprehensive survey, titled 'Realizing Growth Through Operational Agility', which examines the current state of IT and operations in the global buy-side investment management industry and includes several notable findings. This includes the fact that 47% of the surveyed firms lack confidence in either their IT infrastructure, their data, or both.

The results also show that firms that are confident in both their data and infrastructure are much more likely to pursue a growth strategy than those with data/infrastructure problems. Further, firms with a lower degree of confidence in data or infrastructure are more likely to increase IT spend in the future, according to the survey.

The availability of real-time data in the front office is generally perceived as an important factor in buy-side firms' ability to make quality investment decisions. The survey shows that almost half (47%) of the respondents do not have access to real-time data in the front office. When breaking this down by IT strategy, the findings show that more firms running on 'an integrated investment management solution' have access to real-time front office data than those running with 'a core platform with multiple add-ons' or a 'best-of-breed strategy'.

Other findings include:

• The integrated strategy - either a solution from a single supplier or a core system with add-ons - is preferred by the majority (53%).

• The average rate of manual processes in the front office (measured as time spent per day) is 19%, or 1½ hours out of an eight-hour workday for each employee.

• On average, firms operating with a best-of-breed IT infrastructure have higher manual process rates than those running with an integrated solution (24% versus 17%).

David Beveridge, Senior Product Marketing Manager at SimCorp commented: "Having roughly half of all surveyed firms express a mistrust in either their IT infrastructure or data is alarming. While this is damaging to the firms' own ability to generate growth, the ultimate losers could very well be their clients. The survey results clearly suggest the integrated solution strategy as the most viable path to higher operational agility and efficiency."

The survey was conducted in mid-2016 by the market research firm Lindberg International and covered 150+ respondents worldwide. For a full presentation of survey results and conclusions, please download the white paper: 'Realizing Growth Through Operational Agility'.

(Source: SimCorp)

I read an interesting article recently that outlined the way in which cloud adoption has changed the business landscape, causing a seismic shift in how organisations operate. Depending on your source, UK cloud adoption rates are currently anywhere between 78% and 84%, and whilst cloud is no longer a new phenomenon, its importance to not only the CIO but also the full c-suite of decision makers such as CEOs, CMOs and CFOs, is paramount as they jostle to gain a competitive advantage over competitors.

It has been argued that cloud adoption heralds the largest disruption in enterprise computing since the advent of the PC, with many industries embracing cloud-based platforms to not only cut costs but also drive efficiency. Despite this, there has been a certain amount of trepidation from the financial services sector to make the transition and fully embrace cloud and its many advantages.

At the mere utterance of the word ‘cloud’ we used to hear a plethora of reasons why financial services organisations could not make the leap. There were concerns over regulatory compliance as well as the complexity of functional replacement, security and control. And, in an era where financial institutions are more highly regulated than ever before, one could forgive these organisations for a tentative approach to change – especially when it came to new technologies that cloud put compliance at risk. To further validate this hesitance, financial services firms are reportedly hit with security incidents 300 percent more frequently than other industries.

However, over the past year, the UK financial services sector has taken a more confident and proactive approach to cloud computing. In mid-2016, following the publishing of the Financial Conduct Authority’s (FCA) final guidance for UK regulated firms outsourcing to the cloud, it was made clear that there is no fundamental reason why financial services firms cannot use public cloud services, so long as they comply with the FCA’s rules.  This statement and the guidance provided will certainly be welcomed by those UK financial institutions that have been hesitant to embrace cloud due to the lack of regulatory certainty over its use. This also serves as good news for the cloud sector too, providing a boost in the uptake of cloud services in the sector. Certainly, there are many examples of financial services firms using cloud while remaining in compliance with FCA regulations.

Regulatory compliance and managing cyber risk do not need to be the enemy of innovation. In fact, taking a risk-avoidant approach to experimenting with new business models, technologies or user experiences will be a fast path to obscurity in today’s business landscape, where innovation and competition can come from anywhere. Banks, hedge funds, asset managers, insurance firms and other players in the financial services ecosystem should seek out technologies that meet compliance and security needs but also enable agility and flexibility.

Here are three quick benefits that cloud can provide for the financial services sector:

1. Enhanced Security – Contrary to popular belief, businesses who take advantage of cloud computing may actually enjoy stronger security than those who try to go it alone or rely on their on-premise security technologies. The cloud is certainly more secure than many legacy platforms, so if financial organisations choose the right cloud service provider, they can actually experience a higher level of security than they would via legacy solutions.
2. Reduced Infrastructure – As your financial services firm grows, so does its information technology hardware and software needs. By migrating to the cloud, your company can reduce the amount of infrastructure stored onsite, share liability with qualified technology partners, eliminate much of the hassle associated with procuring hardware and software, and reduce costs in the process by moving IT CAPEX to OPEX. There is no longer a need to purchase multiple servers and supporting equipment, store it on-site and pay for the space and utilities to support the operation of that infrastructure.
3. Increased Business Agility - Cloud computing brings with it a number of benefits related to agility. First and foremost, cloud computing is all about scalability and flexibility on demand and financial services firms benefit from being able to roll out new applications very quickly or use the cloud for dev/test to drive innovation. Additionally, cloud computing is built with mobile productivity in mind. Employees need no longer be tethered to their desks. Applications and information can be accessed from virtually any device with Internet connectivity, allowing your staff the access needed to be effective, without being tied to the office.

By embracing cloud computing services, companies in the financial sector are able to add vast efficiency to their operations. As long as the risks can be managed, and with the right cloud service provider they can, there are many benefits. Cloud services – ranging from Production to Dev/Test to Disaster Recovery and backup - can help financial firms reduce setup and operating costs related to installing new IT infrastructure and negate the need to invest in more data centre space by making the necessary infrastructure resources available on demand. Perhaps most importantly for such a regulated industry, cloud services can help financial services firms gain IT innovation while protecting them against cyber-attacks, ransomware as well as maintaining compliance.

If your financial services firm has been hesitant about a migration to cloud computing, it may be time to reconsider. Enjoy stronger security, lower your maintenance costs and unleash the productivity potential of employees by migrating to the cloud.

Authored by Monica Brink, Director of Marketing, iland.

The next game changer that Finance Monthly had the privilege of interviewing is Mark Swindell – the founding partner of Rock Infrastructure. Mark has over 28 years of experience of working in the City of London, New York and Europe. For the last 20 years he has specialised in developing innovative funding, financing and procurement strategies for major infrastructure projects and has worked on most of the groundbreaking PPP transactions. He has worked in the interests of the public and private sectors across the transport, energy, defence, healthcare and social infrastructure sectors to create long-term, privately financed projects with incentives which reward success against output driven objectives and which create public sector value for money.

Mark created and led DLA’s Commercial and Projects group, which grew to 130 lawyers. This group completed over 160 PPP projects in ten different territories over ten years. He became global head of the Infrastructure and Defence Sector at DLA Piper in 2007 and was the principal editor of the five DLA Piper European PPP Reports published between 2005 and 2010. The last of these was sponsored by EPEC and the European Investment Bank.

In April 2011 he left DLA Piper to form Rock Infrastructure. Rock Infrastructure now focuses on developing new infrastructure businesses including setting up Rock Rail Holdings Ltd, which successfully financed the acquisition and leasing of rolling stock on both the Govia Thameslink Railway’s Great Northern "Moorgate” route in February 2016 and Abellio’s East Anglia franchise in October 2016. 

As a professional working within Private Finance going into large infrastructure transactions - what has previously happened in the Private Finance Industry?

Globally, governments wish to provide infrastructure in their countries, since this is a way of growing and kick-starting their economies. Donald Trump promises that about 600 billion dollars will be invested into the US infrastructure market. In the UK, the chancellor recently discussed his plans to spend £24 billion on infrastructure projects in order to kick-start the UK infrastructure market - the UK Government has just given its approval for the nuclear power station at  Hinckley Point, there’s the plan to expand Heathrow, and we have also been working on High Speed 2 (HS2). Across Europe, the European Union is expanding its seed funding in order to invest money into European Union countries’ infrastructure. Countries like South Africa, Australia and emerging markets have also done a lot of infrastructure work in recent years. The model that many governments across the globe have been following for funding infrastructure projects is the Private finance initiative (PFI). This is a way of creating Public-Private Partnerships (PPP) by funding public infrastructure projects with private capital. It basically means that the Government itself spends a lot of time and money on consultants, advisors and contractors at the early preparation stages of procurement projects. While I was still working as the Global Head of Infrastructure and Defence in DLA Piper, this model worked for the public sector, as well as the private sector and the banks that were investing into the market. At this time there was a high level of standardisation. What the Government didn’t like however was the fact that these procurements were taking too long – it was taking 3-4 years to get into a contract, which was before the building phase even started. 4 years, in the cycle of politics, is a long time to develop a piece of infrastructure, before the spade even touches the ground.

In a nutshell, the PFI/PPP system was highly complex and very inflexible in its ability to meet changing needs. Despite being widely used by the public and governments, the system wasn’t solving a lot of the infrastructure related problems that they were seeing. With the financial crisis, another issue was that banks, who were well used to structuring these types of transactions, did not want to lend for a long period of time. This resistance to long tenors was at odds with the whole of PFI/PPP market which is based around 20 years+ tenors.  During that time, the governments were saying that they were not sure that the model was really working for them since the 3-4 years before construction took place was very risky and, at the same time, the banks were saying that they didn’t want to lend their money to PFI projects with such lengthy tenors.

While this way of delivering infrastructure really started in the mid-90s, it had begun to struggle by the end of 2010.  Another big concern of the industry during that time was the lack of a pipeline. Professionals believed that they’d got a strong industry that they knew what they were doing and yet, all that everyone was waiting for and chanting about was a new Government pipeline. There was plenty of equity and plenty of debt waiting for a pipeline, in order to be put to work in infrastructure. Many of the pension funds performances were not as good as they once were. At the same time, a lot of interested parties were starting to think they should be allocating some of their resources to infrastructure since infrastructure continued to pay a constant and regular yield. As a result infrastructure became an alternative asset class that pension funds started to look at more and more. The pension funds and the insurance companies were looking for products and the Governments wanted them to put money into the products without creating more of the PFI and PPP products. This made a lot of people turn to the secondary market. This secondary market was post-construction so all the big risks were gone. Now they were just buying, remortgaging and refinancing the book and the value for money out of those secondary market deals soon came down.

Today most people don’t even consider buying a secondary market since the value isn’t there anymore. By the end of 2010 there was a lot of equity and debt therefore waiting to be locked and invested in long-term infrastructure, for the benefit of governments around the world to allow people to use and similarly benefit from essential, core infrastructure.  People were looking for the right model to do that.

Could you talk FM through the establishment of Rock infrastructure and how this has proceeded to the birth of Rock Rail Holdings and its role in the public sector?

When I got involved early on in PFI, a lot of the early PFI transactions were pioneering, innovative transactions and you had to work quite hard to find where was the good value for money for the Government to transfer risk and where it wasn’t good value for money. The best way to achieve this is by working with all the members of a party – as part of a dynamic process happening on a real-time basis and resulting in the successful delivery of the project.

What I realised around 2010-2011 was that it was the right time to get out of the tank and get into a little speed boat and start to look for the new pioneering innovative strategy to reconnect the Government so it starts stimulating investment in infrastructure and, at the same time, to allow the industry to come together in a way that makes sense for all parties. From the Government’s perspective, it had to be done quicker and it had to be less complex. The Government shouldn’t need to interfere – the markets should make the project work or not. Finally, it had to deliver value for money and be structured in a way that is attractive to pension funds and direct investment into the market.

The real long-term advantage of infrastructure and the one that I believed stakeholders would be interested in is connected to the Government’s long-term interest and the pension funds’ long-term investment horizon. Thus, in an attempt to put these two large stakeholders together and try to minimise the time it takes and the cost that is taken out of it – I created Rock Infrastructure in April 2011. Its mission from the very beginning was to create infrastructure businesses which would be able to efficiently deliver direct investments from pension funds into Greenfield and Brownfield projects. I don’t look at secondary markets, and I don’t look at sales of assets or already constructed assets. I look at trying to bring efficiency in the way that the industry works. There was a large dissatisfaction with the way that current markets were working, so my plan was to come up with a more efficient approach to restructuring the way that the industry stakeholders talk to and deal with each other. It was a new attractive proposition for bringing in new sources of funding and creating new relationships between the parties, while we develop the way that the sector operates.

In relation to the railways sector - all of the UK rolling stock back in the mid-90s had been sold a number of times to organisations that were efficient at leasing trains to train operators. However, they were not adept at delivering value for money nor financing new trains into the marketplace. The UK Government therefore did two big deals in relation to bringing new trains into the network. One of these was called Intercity Express Programme and I got to work on it with Hitachi for 4 years. The Intercity Express Programme was a pioneering rail procurement project. The second was Trainlink. Both those projects took 5 years to get financially closed from beginning to end. Clearly, it took a long time, a lot of cost from the Government side and from the private sector side, and a lot of effort to get the deals finalised. After their completion however, the Select Committee expressed concern about the Government interfering in the rail market and that it was basically giving a 20-year guarantee to say that these trains would definitely be used for the next 20 years. The operators were also told that they would need to use these new trains.

This is when we created Rock Rail Holdings as a part of Rock Infrastructure. Rock Rail was established to focus on better procurement and funding of essential rail infrastructure, enabling better alignment between the investors, the tax payer and fare paying passenger; a funding solution which is off government balance sheet; and offering better value and affordability. Rock Rail started to compete against financial organisations and in providing new trains. It’s taken us about three years to achieve this but we have arrived at a place where it takes us 6 months to close a deal – from an announcement of a franchise which will involve new trains to finalisation. The value for money is palpable and there is now direct competition.

We are providing significantly better value for money so the Government, the train operating companies and the pension funds that have invested in our projects – Legal & General, Standard Life, Sun Life of Canada, and Aviva among others – are happy with the deals and have invested directly in the rolling stock assets. Once the deal is completed, we then manage the construction process. We don’t get paid any fees, since we’re not a consultancy. We invest equity into the transactions and we invest into the assets and therefore we get a minority stake in the businesses, which is normally between 6-10%. Clearly therefore, we get complete alignment of our interest with those of the pension funds. Once the trains are delivered and we release them, the value of this investment goes up which results in our value going up too. What also makes our business a game changer is that we do the deal and then we stay with the deal until its conclusion.

We finalised the Moorgate trains transaction valued at £300 million in February, and we also did another £700 million worth of trains for East Anglia in October – which adds up to £1 billion pounds worth of trains in 2016. We’re currently bidding for another £1 billion worth of trains next year and we expect the same from 2018. Rock Rail Holdings is also particularly interested in getting involved in HS2 trains.

We are also looking at creating a number of additional separate businesses including plans in wind farms, offshore wind and financing OFTO Build. Network Rail – financing electrification, signalling, depots and stations, is another business area we are currently working on as well as business opportunities in roads, tunnels and bridges. At Rock we don’t wait for a pipeline - we go to governments directly and we talk about what we think a proposition could look like, from a value for money point of view. The public authorities help us manage significant risks and for that we’ll be quite happy to offer them more money in return. We are getting value on the risk transfer, and this is the way to go, rather than how the private sector funds operated in the past.

We are now planning on investing in other markets and are looking forward to a very productive two to three years to come in creating new and pioneering infrastructure businesses.

As a game changer in the field of infrastructure development, what is your advice to project developers and their approach to funding?

Since there’s no revenue stream, managing a business as a project developer is quite hard, because you don’t have a regular cash-flow. This means that as a project developer you have to go very deep into a deal or a particular business stream. You do kick a lot of frogs and you have to be quite decisive and flexible. You need to be passionate about changing a particular area. You have to listen a lot, you have to be very focused and not embark on many different projects at the same time. And last but not least, you have to be entrepreneurial – changing your approach, completely adapting and then always keeping ahead of the game by changing the way you see things and by learning from what you’ve done to try to be better next time.

Infrastructure, it seems, has never been more high profile.  Chancellor Philip Hammond announced a spending spree on UK infrastructure in the Autumn Statement, whilst on the other side of the Atlantic, one of the focuses of Donald Trump’s election campaign was a $1 trillion infrastructure spending, with much of this also relying on private financing.

The investment company industry has a thriving Sector Specialist: Infrastructure sector, with foundations both in the UK and internationally.  The closed ended structure provides investors with the purest way of accessing infrastructure projects, by investing in contracts to develop and run long-term capital expenditure projects in public sectors such as transport, healthcare and schools. These contracts are for the long-term (20-50 years) and aim to deliver a stable income over the period of the contract, often linked to inflation.

HICL Infrastructure and International Public Partnerships were trailblazers of the sector, both launched in 2006.  By the end of 2006, the sector had total assets of £550m, compared to £11bn today, making infrastructure the industrys growth story of the decade, and the fourth largest investment company sector.   The AIC has collated views from the Sector Specialist: Infrastructure Sector from both a UK and US perspective.

 Giles Frost, Chief Executive Officer, Amber Infrastructure Group, managers of International Public Partnerships, said: “Never has the word infrastructure been used so frequently as the Chancellor decides that infrastructure spending will be the tool to boost productivity. This is nothing new, but what has changed is the shift away from procuring only big-ticket public infrastructure projects to adopting a more consultative and entrepreneurial approach to plugging the UK’s infrastructure deficit.

“Regions are now set to have increasing spending power to procure bespoke solutions for road, rail and housing projects. This fits with what looks like a social inclusion agenda by central government, seen most clearly in an effort to drive through improvements in broadband connectivity. Decentralising infrastructure spending will allow for more flexibility for private investors to take solutions to local authorities and not simply rely on central government to provide a list of ready-made projects in which to invest.”

Tony Roper, Director, InfraRed Capital Partners, Investment Adviser to HICL Infrastructure, said: “The government is proposing a new pipeline of projects that are suitable for delivery through the PF2 Public Private Partnership scheme. A list of projects to make up the initial pipeline, covering both economic and social infrastructure, will be set out in early 2017. As details become clearer, there might also be potential opportunities in the social housing sector.”

On the US, Tony Roper added: “If the President-elect's policies result in the successful roll-out of new projects requiring private sector capital, particularly in areas like transportation, then London-listed investment companies with a presence in the US will be in a good position to participate in them. Investors are attracted by the segment's stable and differentiated performance with low volatility and strong income generation plus inflation linkage, evidenced historically over 10 years.”

Duncan Ball, Co-CEO of BBGI, managers of BBGI SICAV S.A. said: “President-elect Donald Trump’s proposal for $1 trillion-worth of new infrastructure construction relies heavily on private financing, which bodes well for companies like BBGI that work with governments to deliver and operate important infrastructure. BBGI has 39 separate public-private partnership infrastructure investments and is optimistic about improved deal flow coming from the U.S.A.

“During the election campaign, Mr. Trump made a $1 trillion infrastructure investment over 10 years one of his first priorities as president. He committed to ‘rebuild our highways, bridges, tunnels, airports, schools, hospitals.’”

A critical element of Trump’s plan relies on harnessing the private sector to help finance and build these infrastructure improvements. Duncan Ball, Co-CEO of BBGI, continued: “We envisage an increase in the popularity of the public-private partnership model next year.  BBGI is an investor in East End Crossing Project, a highway public-private partnership project consisting of a new 1,700 foot tunnel, associated road works and a 2,500 foot cable stay bridge across the Ohio River between Kentucky and Indiana, home state of Vice President-elect Mike Pence. We believe this highly successful highway public-private partnership project, which will open to traffic in December 2016, could serve as a role model for more projects in the USA.”

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “Infrastructure has been the fastest growing investment company sector of the last decade, with the closed ended structure the ideal home for investing in long-term infrastructure projects.  This is because managers have a stable pot of money and are crucially not affected by investor inflows and outflows. Continuing this trend has been the emergence of the Renewable Energy Infrastructure sector after a spate of launches in 2013 and 2014.

“The Sector Specialist: Infrastructure sector is currently trading on around a 14% premium, reflecting the strong demand for alternative income.  Of course investors need to take a long-term approach to investing and premiums can turn to discounts if sentiment changes.”

% share price total return to 31 October 2016

(Source:AIC)

In a letter to the new Chancellor, Phillip Hammond, ICAEW has urged Government to take action urgently and reverse the trend by increasing investment in public infrastructure. It also calls for new fiscal rules to support greater private investment.

In its paper ‘Funding UK Infrastructure’, ICAEW argues that for all the new initiatives announced by Government in recent years, public investment in economic infrastructure appears to be static or declining until the end of the decade, while attempts to encourage greater private investment have not been successful. It also reveals:

-Private finance initiative (PFI) contracts have been drying up, with only £0.7bn of projects reaching financial closure during 2014-15.

-Although the Government announced that the total National Infrastructure Pipeline had increased from £411bn in 2015 to £425.6bn in 2016, the near term profile of investment grew by less than the overall growth in the economy, with investment in energy infrastructure declining.

-Investment in social infrastructure – schools, hospitals and housing - is also static or declining, with claimed increases in social housing investment being offset by expected reductions in capital spending by housing associations.

Vernon Soare, ICAEW Chief Operating Officer and Executive Director, said: “In the past we have seen too much talk and not enough action on infrastructure. The combination of a new Chancellor, low interest rates and Brexit means that now is the time for decisions to be taken and investment to be made. Wavering on projects such as a new runway in the south east of England and a lack of public investment have meant that we are not getting the economic benefits that infrastructure can generate. If Government leads the way, private investment will follow.”

The new Chancellor has already made the decision to change fiscal rules to permit borrowing to fund investment. However, priority now needs to be given to infrastructure investments that provide a positive return to the taxpayer and so pay for themselves, while PFI contracts need to be brought back onto the balance sheet so that they no longer bypass fiscal targets and can be properly evaluated based on whether they provide value for money to the taxpayer.

Vernon Soare adds: “With cost cutting and austerity only getting the UK so far, it is now necessary to generate revenue growth. That will require more investment in key infrastructure projects and spades in the ground. There is now the potential to use borrowing to fund an immediate increase in infrastructure investment.”

(Source:  ICAEW )

Local communities must be involved in infrastructure development at every step of the way, said Cyril M. Ramaphosa, Deputy President of South Africa. Infrastructure is for the betterment of people’s lives and is important that they feel a sense of ownership by being given full opportunity to benefit from the construction and from eventual delivery, he added.

South Africa’s experience of filling a gigantic post-apartheid infrastructure deficit over the past 21 years – since the advent of democratic government – has taught it important lessons, said Ramaphosa. One of these is that coordination of all projects at the highest level is critical to the best division of resources and to timely completion. South Africa has situated a coordination agency within the president’s office, enhancing and centralizing the government’s own management capacity; improving transparency, particularly with regard to tenders, which are often a point of corruption; and effectively “crowding in” the private sector.

Partnerships with the private sector have been particularly successful in the energy sector, with companies being given licences to develop generation capacity largely independent of government interference, and selling power into the national grid.

Colin Dyer, President and Chief Executive Officer, JLL, USA, said developing countries’ domestic capital markets are very shallow and will take time to strengthen and deepen. But the urgency of the infrastructure task requires financing right now, which means international markets have to be tapped.

Dyer listed four key factors to attracting international capital: transparency on costs and returns, and purchase and selling prices; reliable judicial systems to protect ownership; low levels of bureaucracy; and low levels of corruption. Dyer added that many countries in Africa are, in fact, success stories in terms of these criteria, but these stories are not being told. “The press loves to stream problems and whisper success,” he said.

John Rice, Vice-Chairman, GE, USA, said inclusive growth is impossible without electricity, citing figures showing that 500 million in Africa are “in the dark”. This has to change and quickly, and highlights the need for nimbleness and urgency on the part of governments and bureaucracies in addressing power gaps. “Speed matters,” he said, lamenting how important projects are allowed to “languish” due to political electoral cycles.

Equally, potential financers express eagerness to invest in infrastructure because of a clear and urgent need for it, but then allow enthusiasm to wane as they proceed to “define risk in the old-school ways,” noted Rice.