UK pension schemes – in particular, the new asset pools being formed by local authority pension funds – need to avoid competing against each other for infrastructure deals, according to panellists at IPE Real Estate’s Real Assets & Infrastructure conference.
The possibility of the eight pools separately bidding for the same asset was described by Antony Barker, director of pensions at Santander UK, as “the worst thing” that could happen.
“At least seven of them, potentially all eight if someone else comes in, will spend an awful lot of due diligence and costs, and not win the prize at the end of it,” he said. “There has to be a sensible pooling to genuinely get the result that this thing is designed to do.”
Others agreed.
On a panel focused on the pooling of capital and resources for infrastructure investment, Paddy Dowdell, assistant executive director and head of real assets at the Greater Manchester Pension Fund (GMPF), provided an overview of the joint venture – GLIL – that the GMPF and the London Pension Fund Authority (LPFA) set up to invest in infrastructure.
GLIL, a £500m (€553m) investment vehicle at the moment, is on course to be around £1.5bn towards the end of the year, with other pension investors lined up to join once their due diligence is completed, according to Dowdell.
However, he said GLIL had become secondary as a concept and that the situation was rather “about promoting a new way of working within the LGPS pools as they form”, coming together for infrastructure.
“As mentioned by other speakers, collaboration is the way forward,” he said. “There’s no point in these pools bidding against each other.”
Fiona Miller, head of pensions and financial services at Cumbria County Council, said the pools were “very aware” of concerns about their bidding against each other as infrastructure investors.
Miller is also heading up the Border to Coast pool, set to be the largest of the eight pools, with some £40bn of assets under management.
She is also chair of the cross-pool infrastructure group, which is looking at ways in which the pools can work together across all the LGPS to invest in infrastructure “a bit more sensibly than we do now”.
Miller said the underlying pension funds had very different allocations to infrastructure and a varying level of resources to pursue infrastructure investment, “so this really is about collaboration”.
She said there would be a infrastructure platform and that it would be predominantly for investing in the UK, “but that does not mean the LGPS pension funds will not still be global investors in this space”.
She added: “We would look to take the national platform as a piece of our total allocation to infrastructure. It’s about doing things differently so we can help drive down fees and improve the governance.
“We’ll drag down fees by doing some of it ourselves, co-investing with managers, looking at deals the managers maybe wouldn’t look at and sharing resources across all of the pools. The intention is not to do this eight times over.”
There has been considerable debate about what form LGPS infrastructure investment will ultimately take once the pools are formed – for example, whether a single new platform should be created or if existing vehicles such as the GLIL or the Pensions Infrastructure Platform (PiP) could be used.
Taking a wider perspective on collaboration on infrastructure in the UK, Mike Weston, chief executive of the PiP, said there was fortunately little overlap between the PiP and the GLIL, as they had different risk/return profiles.
He said the PiP did not want to be in a situation where it was competing with the LGPS pension funds for the same asset.
Weston called for a “unified approach”, saying it was important to avoid a situation where “you’ve got UK pension schemes on two or three sides competing for the same deal or asset, all with different partners”.
Duncan Hale, portfolio manager of the Secure Income Fund at Willis Towers Watson, suggested that building bigger pools of capital missed the point when it came to stimulating more infrastructure investment in the UK, saying that, “from an infrastructure perspective, it’s a solution to the wrong problem”.
What is lacking, he said, is not capital but well-structured transactions.
