UK - The proposal for a multi-billion infrastructure fund as part of the pooling of London's public sector pension assets is a "ruse" to court favour in central government, according to the Centre for Policy Studies.

The plans, discussed at a recent London Council meeting, recommended that all local authority funds in London - as well as the pension schemes for Transport for London and the Corporation of London - pool assets and launch a £2.5bn (€3bn) infrastructure fund specifically targeting projects in the London region.

However, Michael Johnson, research fellow at the conservative think tank, was critical of the latter fund proposal, likely the result of the London Pensions Fund Authority signing a memorandum of understanding with the Treasury last year to promote investment in the asset class.

He said the "bolting-on" of the infrastructure fund was "nothing more than a ruse" to try and convince central government the merger was a good idea.

"The individual funds already invest in infrastructure, so in the round it doesn't necessarily create additional capacity to invest - let alone all the problems it would open up were it to come to fruition," he said, raising concerns that each scheme would speak out in favour of projects benefitting its own area.

John Hanratty, pensions partner at Pinsent Masons, added that investing in a council's own area would be akin to private sector self-investment - from which corporate schemes are prohibited.

Johnson issued a harsher warning.

"You've got the commingling of politics and decision-making to do with asset allocation within the pension fund," he said. "That is an absolute recipe for disaster."

Hanratty also raised the issue of the infrastructure vehicle's size, saying it would not be adequate by itself to fund many infrastructure projects.

Asked about the possibility of funding housing developments, he was more positive.

"If you are moving away from council housing, you are moving towards council pension fund housing rather than the social housing model that politically has been trailed over the last few years."

He added that such investments would have other, cash flow-related advantages.
"Infrastructure, by its very nature, takes time to develop and takes time to start producing a return," he said.

The lawyer said this could pose a problem at a time when councils were facing redundancies, lowering the number of active members that could see a number become cash-flow negative.

Johnson also predicted that vested interests would pose problems for the infrastructure proposal, saying a "bun fight" of entities currently managing local government assets could break out.

He said: "Reading between the lines, you can see that already happening - some of them have come up with this infrastructure fund idea, which then, of course, should fall into their own domain rather than anywhere else - for example, a professional fund manager."