UK - Pension funds in the UK must begin pooling their assets and should consider building up in-house investment teams to better invest in infrastructure, a new report by the Confederation of British Industry (CBI) argues.
In its report, An Offer They Shouldn't Refuse: Attracting Investment to UK Infrastructure, the CBI urged UK schemes to be as "adventurous" as their North American counterparts. It also called on government to boost the credit ratings of projects that sometimes filed to attain an investment grade ratin, thereby deterring institutional interest.
The organisation's director general John Cridland said that government should consider the introduction of a time-limited dividend tax credit that could form an inventive for schemes to invest.
"If we can capture just a fraction of the £1.5trn (€1.8trn) of capital held in UK pension funds, and invest a further 2% of their total assets in infrastructure, this would make a huge contribution to renewing our energy, transport and other infrastructure," he added.
The report admitted that the fragmented nature of the UK pension market did pose a problem, but suggested that pension funds should consider pooling their assets in an effort to achieve the scale required for any investment.
Proposals to pool all London local authority pension assets and earmark £2.5bn for infrastructure investments were presented to the capital's councils earlier in the year, although commentators said it posed "significant challenges" and branding the infrastructure vehicle a "ruse".
The report praised the proposed Pension Infrastructure Platform (PIP) being developed by the National Association of Pension Funds and the Pension Protection Fund (PPF) as being "part of the solution", but urged the parties involved not to be too restrictive in its design - arguing that no minimum investment threshold should be introduced and any scheme, regardless of assets under management, should be able to commit funds.
"Equally, the PIP should not restrict investments to UK infrastructure only, to ensure diversification in the long-term to avoid cyclicality," the report urged.
Alan Rubenstein, the PPF's chief executive previously told IPE that assets outside the UK would "potentially" be considered, with the fund managers reaching the final decision. He also said that the platform, the result of a memorandum of understanding between the fund and the Treasury, would look to avoid construction risk.
Commenting on the CBI report, the NAPF's chief executive Joanne Segars said: "Pension managers are eager to get more involved with bricks and mortar, but often find it difficult to do so. Skills gaps, small fund sizes, investment fees, and fears over construction risk are all obstacles at the moment."
She added that the organisation was hopeful that the PIP, once launched, would address concerns of skill and investment viability raised by the CBI.
The CBI also called on funds to consider in-house investment teams, citing the ongoing management requirements of long-term commitment to infrastructure, and noting that it would do away with the additional cost of manager fees.
Additionally, it suggested that co-operation with other investors - such as private equity houses - should be part of UK fund's agenda as it moved more towards in-house management.
"This can be done through syndication, for example a private equity firm would bid for a brownfield infrastructure asset on behalf of a group of institutional investors, including pension funds."
The report said that this would have the advantage of the partner handling day-to-day management, with the pension fund able to gather further experience by sitting on the boards of non-executive directors.
The CBI also outlined its proposal for a limited reinstatement of the dividend tax credit, which it said would increase the attractiveness of infrastructure for "risk-averse" schemes.
"The credit would be available for investment in projects during a five year period and it would apply to the entire life of the investment," the report suggested, with it being solely targeted at greenfield developments - while also granting some UK schemes a competitive advantage over larger overseas investors bidding for the same project.