Vehicles must be developed to allow for pension investment in small-scale infrastructure projects, a trustee of one of the UK’s largest pension fund has said.

Donald MacDonald, trustee at the £40bn (€48.3bn) BT Pension Scheme, said infrastructure investment by the industry faced an uphill struggle, as there was too much money “chasing insufficient opportunity”.

He said BTPS had been in competition for infrastructure projects with the UK’s Universities Superannuation Scheme and Railpen Investments, the Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan, as well as Australian Super funds.

MacDonald told the RI Europe conference in London: “What we need to be doing is talking to the governments and inter-governmental organisations to look at how we package projects – because a lot of the projects, for pension funds, are actually sub-optimal.

“We just haven’t got the resources and finance to manage loads and loads of small investment in infrastructure opportunities.

“Things need to be bundled, risk needs to be shared. We need to look at better ways of mutual investment and co-investment vehicles, which is becoming much more part of the scene.”

MacDonald, speaking at the event in his capacity as chairman of the Institutional Investors Group on Climate Change, said the UK’s Green Investment Bank and the European Investment Bank would be “quite critical” in allowing for such co-investment deals, as they were building alliances with private sector partners.

He added that many governments and civil servants had only recently begun to understand that the construction risk of infrastructure investments was not of interest to pension funds.

He said other parts of the financial market were simply better equipped for such ventures.

Speaking of the BPTS’s annual pension payments in excess of £2bn, he said it needed to have a “very conservative risk profile”.

“Although, interestingly, both myself and others, as we become more familiar with infrastructure issues, are starting to look at [construction] risk and possibly doing more in that area,” he said.

BTPS was among the three pension funds to withdraw its support from the Pension Protection Fund-backed Pensions Infrastructure Platform (PIP) earlier this year, claiming at the time that its direct investment programme was the “most appropriate solution” for the fund. 

However, the two other funds – the London Pensions Fund Authority and the BAE System pension scheme – both cited concerns over the risk/return profile of the PIP.