The Universities Superannuation Scheme (USS) has increased its stake in Thames Water, making it the single largest investment in the UK pension fund’s £82.8bn portfolio.
USS said it purchased an additional 8.77% in the country’s largest water and waste-water company, taking its holding to nearly 20%.
The stake in Thames Water, which has 15m customers in London and the South East of England, was sold by Wren House Infrastructure Management.
The pension fund said the investment was the latest “demonstration of its commitment to UK infrastructure”, highlighting that its UK investments represented 45.8% of its total assets, “at a time when the government has been calling on pension schemes to invest more into the country’s economic recovery”.
Earlier this year, Prime Minister Boris Johnson and Chancellor Rishi Sunak called on the domestic pension fund industry to allocate more capital to long-term UK assets, including infrastructure, and a number of investors, including USS, responded by highlighting the significant investments they were already making in this area.
USS, which first became an investor in Thames Water in 2017, said that, despite challenges, including “ageing infrastructure and impact of climate change”, the company had performed well over the past year.
It highlighted a recently strengthened board under CEO Sarah Bentley and a new executive leadership team, and said it was seeking to reduce leaks, invest in its infrastructure, improve customer service and work towards net-zero targets.
USS said leak detection had already improved after major upgrades and there were plans for £10.7bn of investment during the current five-year regulatory period, covering upgrades to sewage works and connecting the network to the Thames Tideway tunnel.
The pension fund said the company had also rolled out a new billing system and offered more support to customers struggling to afford bills.
Thames Water also announced a roadmap to achieving net zero by 2030 and carbon-negative figures by 2040 through a combination of emissions reductions and an increase in the amount of renewable energy generated.
Simon Pilcher, CEO of USS Investment Management, said: “We are delighted to be making this further investment in Thames Water, a critical supplier to millions of people every day.
“Under its new management team, the company is juggling many priorities, such as net zero, that will require the kind of decades-long investment time horizon, as well as stewardship skills, that we can offer. We look forward to supporting on the next stage of the company’s journey.”
Mike Powell, head of the private markets group at USS, said: “Thames Water has some key challenges to overcome in the coming decades. Real progress has been made but customers and the general public quite rightly expect more.
“This will require hard work and further substantial long-term investment. USS is ready to support Thames on this journey, but it can only be achieved with all the company’s stakeholders working together, creating the right environment to deliver the investment that everyone wants.”
Ian Marchant, chairman of Thames Water, said: “This increase in investment is testament to the company’s commitment to develop a long-term strategy to ensure a resilient water and waste service for generations to come.
“With a new experienced leadership team ready to turnaround the business, we are determined to become a water company our stakeholders, customers and employees can be truly proud of.
“Being innovative is important to our success and it’s something we’ve been particularly focused on alongside investing in the company’s infrastructure, customers, and our responsibility to the natural environment.”