Schemes eager to back government’s infrastructure investment drive

Almost two-thirds (65%) of UK pension fund leaders expect to increase allocations to UK infrastructure over the next 12 months, according to new research.

GLIL Infrastructure polled 300 pension fund leaders across local government and the private sector and found that more than a third (39%) said the main driver of this increased investment was supporting the UK economy.

The government has been actively encouraging UK pension funds of all kinds to put more money into UK infrastructure, and this is a core element of the Mansion House reforms announced last year.

This focus from the government was also a significant incentive for more than a third (37%) of investors, while 34% said a key driver of infrastructure allocations was to support local communities.

Challenges and hurdles

However, respondents also highlighted several challenges that could hinder any increase in infrastructure allocations.

Almost a quarter (23%) said ongoing economic instability was the biggest obstacle, while 22% cited the need to keep sustainability at the core of investment pipelines, in order to support the UK’s net zero ambitions, as the main challenge.

More than two-thirds (70%) of respondents to GLIL’s survey agreed that investment should prioritise assets supporting the transition to a low-carbon energy system. Almost all (96%) said they would focus on investments in areas such as battery storage, hydrogen, and carbon capture usage and storage.

Ted Frith, chief operating officer at GLIL Infrastructure, said that while there had been “significant inflows” into the asset class in recent years, other jurisdictions “have been winning the competition for capital investment”, as the attractiveness of the UK as an investment destination has fallen.

“Those in positions of influence should take note of our survey findings and work to address the perceived deficiencies in the UK marketplace, such as long delays due to planning applications, which are getting in the way of delivering the infrastructure upgrades the UK needs,” Frith said.

“While pension funds gain access to reliable, inflation-linked returns, infrastructure investing can also be a force for social good, supporting local communities through jobs, education and regeneration projects, as well as helping to drive the economy forwards.”

Further reading

TfL Pension Fund acquires wind farm (13 March 2024)

DC funds more open to real assets: Aviva (29 January 2024)

UK pension funds turn to renewable energy investment (23 January 2024)