An increasing proportion of large industrial and infrastructure owners are pure financial players. Such owners lack the deep industry and technology experience of more traditional industrial owners. This creates a number of issues in terms of project execution and performance. In our new White Paper 2022-06 ‘How To Adapt to the Increasing Share of Financial Owners’, we investigate the consequences of this trend on owners and contractors for the actual execution of such projects.
Following a general economical trend, pure financial players are increasingly getting involved directly as owners in large industrial and infrastructure projects with the objective to create an asset that will deliver substantial and regular returns over their lifecycle. This can be through special purpose vehicles or directly as funds taking majority equities in projects or industrial operators. Often those financial players will look to exit the project with substantial return on equity at a shorter horizon than the infrastructure lifetime through refinancing exercises (typically 5-7 years); financial owners actually only concentrate on the project development phase.
While usually very cognizant about financial structuring, financial owners have much less competency on technical or industry-specific aspects. Beyond hiring a limited number of industry experts to help frame their investments, they thus generally seek the support of owner assistance or project management contractors to effectively deliver the projects. They will also often delegate asset operations and maintenance to third party companies. However, this setup may also create issues and project performance concerns, in particular in the following areas:
- Excessive expectations regarding project and asset performance,
- Lack of competence of the owner to drive the right technical decisions during project definition and execution, in the interest of the full lifecycle value of the asset. This is also linked to poor governance including inadequate control of key project milestones,
- Lack of alignment of interests between owner and owner assistance leading to decision delays. This additional complexity may have a significant impact on project delivery.
Read our new White Paper 2022-06 ‘How To Adapt to the Increasing Share of Financial Owners’ for more details on those issues and how to manage them.
The trend towards financial pure players as owners for major industrial and infrastructure projects reinforces the need to have a clear view of the minimum skills and competency that an owner needs to have and cannot delegate – even to apparently benevolent owner assistance contractors. General expectations in terms of owner competency apply, and financial owners must be ready to internalise a limited number of experienced project personnel that will allow them to effectively drive project performance and avoid being taken hostage by contractors.
If you can’t access the link to the white paper, copy and paste the following link in your browser: https://www.projectvaluedelivery.com/_library/2022-06_impact_increasing_financial_clients_v1.pdf
