July 10, 2019
In 1865 Richard Costain persuaded his brother in law to take the boat to Liverpool, setting up business as jobbing builders and undertakers, and the company they founded went on to build Mulberry Harbours for D Day, assembled the largest dredging fleet ever to create acres of new land for Hong Kong Airport and was a founder member of the Channel Tunnel Consortium. Unhappily, history doesn’t record what happened to the undertaking business, but we can probably assume it was less successful…or at least we could until last week. Shares in Costain collapsed last Friday by 35% following news that the HS2 southern section will be delayed (again), as will the M6 smart project and a new road system in Preston. It’s all beginning to sound a bit Carillion: yet another ratcheting up of the seemingly unstoppable malaise affecting UK infrastructure projects.
Costain might now be regretting its dependence on the UK sector which would be ironic not only because it was a key player at Hong Kong Airport, but also in a string of prestigious projects across the globe, including the Amlohri Mine redevelopment in Northern India. This involvement by a British company at Amlohri also seems particularly ironic now given the disparity between the UK (with its record of projects being pulled, cancelled or delayed) and India’s vibrant, homegrown construction sector.
Construction is second only to agriculture as the largest employer on the subcontinent, and in a sector that was once dominated by small, barely regulated entities, there has been a marked shift towards consolidation: just the kind of consolidation that would have warmed the cockles of Richard Costain’s heart. And a major factor behind this was 2017’s Goods and Services Tax (GST), widely seen as having disrupted smaller (and all too often shadier) sector participants: the new system of reverse charging in particular means tax is now charged upfront to the client and collected by the contractor, but only if the contractor is state registered. Smaller, unregistered companies now have to leave it to the customer to record and pay GST and with rates on cement (still the crucial construction material) currently running at 28%, that’s on any basis an accounting and cashflow headache the client can do without. So they’re turning to better regulated, more compliant (and usually bigger) companies to do their work for them.
And given the extraordinary growth of construction on the subcontinent, reflecting an increasingly urbanised and rapidly expanding population, this kind of regulatory and market stability has to be a good thing: it provides a solid and stable base for further growth, as well as a platform for the technologies required to deliver more buildings at the dizzying rate India demands: technologies like modular construction and lightweight steel structures.
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We’ve definitely seen a seismic shift in the global balance of infrastructure and construction power: I think we’ve all sensed it, and the reasons aren’t hard to find.
India now has the fastest growing population on the planet and will soon have the biggest population in absolute terms too (overtaking China). Added to that the subcontinent is going through an unprecedented process of urbanisation, all of which requires more homes and buildings to be delivered at a rate never seen before in the country’s history (or any other country’s come to that).
Prime Minister Modi’s government has responded by securing regulatory and compliance structures like never before, consolidating markets and supporting structured corporate growth. But when it comes to construction, bigger and more reliable businesses won’t be enough by themselves because traditional building technologies just can’t cope with the sheer scale and pace of delivery required. That’s why innovative techniques like modular construction will always be part of the solution.
I expect Mr Costain would have agreed…
July 21, 2017
Red Ribbon Fund Management has long been committed to Impact Investment Strategies. For more than a decade it has been at the cutting edge of strategies that not only look to deliver above market rate returns for its investors, but also to achieve the best, most positive impacts on our communities, our wider society and on the environment generally. It is important that these strategies are also sustainable, offering long-term solutions within the mainstream economy; because the Fund Managers at Red Ribbon understand short term, one off interventions however positive their transient impact might be, can only ever be of limited significance to the wider community.
Just think for a moment of the difference between a one off famine relief effort in Darfur and a commercially viable project that will build up the same region’s agricultural infrastructure. There is a world of difference, precisely because commercial viability is the single biggest driver of long-term economically sustainable projects.
That’s what Red Ribbon means by Mainstream Impact Investment: investing in worthwhile projects that are commercially self-sustaining: because they deliver commercial returns for investors as well as a positive impact for our wider communities. It’s not just about doing the right thing, it’s about commercial common sense as well.
And after ten years, it’s a message and a mission that is attracting increasing levels of support amongst the wider investment community as well.
Take Morgan Stanley which last month raised in excess of $125 Million in final commitments for its first Global Impact Investment Fund (the Integro Fund). Launched in conjunction with the Morgan Stanley Institute for Sustainable Investing, Integro is now planning to invest exclusively in Private Equity Funds offering above rate market rate returns but which at the same time demonstrate a potential for positive environmental or social impact (or both).
It rings a bell doesn’t it?
In their Press Release issued at the time of the launch, Morgan Stanley explained that they were expecting the Integro Fund to maximise commercial returns for investors, but also to increase access to quality jobs, education and healthcare along with other socially beneficial outcomes; as well as striving to impact the environment in a positive manner and reduce the effects of climate change.The Investment Managers at Morgan Stanley’s Integro Fund also plan to provide detailed, impact-related reporting alongside traditional financial statements for its investors; and that too has long been a central component of Red Ribbon’s investment strategies. Red Ribbon Fund Management favours companies just like these: companies that are able dispassionately to calibrate the negative and positive impacts of their economic activity as well as being transparent with key internal and external stakeholders on just what those impacts are. Red Ribbon believes that more responsible corporate conduct is likely to be driven by such transparent policies and the better levels of social engagement that it engenders.According to The Global Impact Investing Network, 90% of investors in Funds pursuing an Impact Investment Strategy have reported that returns on their investments either met or exceeded expectation, which may help explain why Impact Investment Strategies are gaining so much traction at the moment. In 2013 an estimated $46 Billion was allocated to impact investing; that figure had grown to $77.4 Billion by 2015 and The Monitor Institute predicts it will reach $500 Billion by 2020.
Commercial returns combined with long-term economic growth; and social growth that is capable of making a real difference to our world. It’s the Red Ribbon way and it’s what makes Mainstream Impact Investment so important.
Read about The Global Impact Investment Network
Read about The Monitor Institute
Read about Red Ribbon’s Fund Management Strategies
Read about Morgan Stanley’s Integro Fund