FT European Infrastructure: Greater Manchester Pension Fund has made the first investment of its joint venture with the London Pensions Fund Authority, but said high demand for the UK infrastructure market makes finding deals challenging.
Infrastructure has increasingly caught the attention of pension schemes, as low interest rates have forced them to look elsewhere for yield and commentators have argued the government should do more to make infrastructure assets available to schemes.
Speaking at a Financial Times event on Tuesday, Danny Hobson, investments manager for GMPF, said the £500m joint venture had just closed its first deal in a greenfield anaerobic digestion project.
We really need to make our assets work as hard as possible for us
Leyland Otter
However, he and other schemes at the event said the high pricing of UK "trophy assets" was forcing them to look at smaller or riskier assets for their infrastructure portfolios.
He said: “We don’t have a policy of, say, shying away from trophy assets. We do try to be opportunistic. It just so happens that in the UK these trophy assets are pretty expensive.
"The UK is a very attractive market. A hot market, I would say, at the moment. We do tend to fish slightly lower down.”
GMPF and LPFA announced their joint venture earlier this year, setting aside £500m to invest in UK-based infrastructure opportunities.
Moving down the food chain
Leyland Otter, senior investment manager at Merseyside Pension Fund, said it had shied away from big-name projects in the UK due to pricing.
He said: “We do tend to avoid them because we see the prices getting a bit frothy there, some of the multiples, the EBITDA [earnings before interest, tax, depreciation and amortisation] and things, we just don’t see [the value].”
As the Merseyside fund is in deficit, Otter said: “We really need to make our assets work as hard as possible for us, looking at projects which wouldn’t necessarily cross the radar screens of some of these larger funds.”
Instead the scheme focuses more on smaller, proprietary deals that are not subject to an auction process, because the pricing is more “realistic”.
Roy Kuo, team head for alternative strategies at ecclesiastical investment manager Church Commissioners for England, said the ease with which investors could access UK infrastruture was driving down yields.
He said: “The UK legal framework is excellent, that’s [the reason for] the attractiveness of the UK market, but it also makes it much more competitive and yields have obviously been down.
"There hasn’t been as much of a pipeline of projects that actually need capital, and so the number of assets out there that are traded is much less than what we would hope for.”
