The Church of England Pensions Board is considering spreading its infrastructure portfolio outside Europe, following a similar decision to rebalance its property portfolio towards the US and Asia in a hunt for return.
The decision reflects the challenge faced by politicians seeking pension fund investment for UK-based infrastructure projects, which can be costly and difficult to find (see timeline).
The government-industry initiative to build up this investment – the Pensions Infrastructure Platform – has only raised a reported £330m since it was set up in 2011, against its £2bn target.
The CofE board, which administers five schemes with total pooled assets of more than £1.5bn, has committed £80m to “European, brownfield, core infrastructure” split equally between two managers, said chief investment officer Pierre Jameson.
The amount currently invested makes up 3 per cent of the schemes’ growth assets and will comprise 8 per cent when fully drawn down, but the fund is considering looking beyond Europe for investable assets.
“Within infrastructure we have not found it particularly easy to find good funds with good managers and where the assets are still at the kind of price that will give us the returns we need,” Jameson said.
In the second half of 2013 the board diversified the schemes’ property portfolio, increasing its overseas investments to 50 per cent of its total property holdings, up from 25 per cent. “There are some quite attractive property opportunities outside of the UK and I think it’s useful diversification,” said Jameson.
He said the board does not currently have plans to increase its allocation to overseas property since the schemes need to “digest these most recent changes” and because of the economic link between its liabilities and the UK property market. “That’s not to say that we wouldn’t think about doing that,” he added.
Hunting assets
Richard McIndoe, head of pensions at Glasgow City Council, which administers Strathclyde Pension Fund, said there remain infrastructure opportunities in the UK.
The scheme approved a £50m investment through Pip in December last year and has made further commitments to infrastructure, including £30m to renewable energy sources in June.
But he added: “Clearly there are more opportunities if you look farther afield and at some point we will look for further opportunities.”
Pip focuses on investment in UK infrastructure, but its first investment with Dalmore Capital has an allowance for 15 per cent of non-core assets, currently invested in Europe.
Mike Weston, the platform’s chief executive, said the fund has no plans at present to enter emerging markets. “Typically [you would] want a much higher return than we’re targeting,” he said.
Nick Spencer, director of alternatives at Russell Investments, said there were still good opportunities for schemes to invest in UK infrastructure.
“It’s true some of the sort of core, stable assets are going at higher prices for valuations but if we look broader in terms of building platforms and more return-specific, individual deals, we still see opportunities,” he said.
Spencer said renewable energy in particular was a good option for pension schemes due to the carbon emission reduction target imposed by the government, as well as the general need for renewable energy infrastructure.
If schemes are investing in emerging market infrastructure they will need a manager with “very high and local expertise”, Spencer said.
