The Pensions Infrastructure Platform is moving closer towards establishing a framework for how investments will be managed and allocated, but the route to launch has been peppered with challenges, finds this report from our The Specialist series.
The initiative, originally launched by the National Association of Pension Funds and the Pension Protection Fund in late 2011, opened up this month to expressions of interest from investment managers, but with an extremely open mind about how that is to be done.
For the full The Specialist report on property and infrastructure, go here to find the PDF.
Pip is hunting “managers, teams or individuals” interested in running some or all of the £2bn in assets it is targeting, having raised £1bn so far. It is to be managed either through an in-house or outsourced fund management set-up, or a mixture of the two.
In April, Pensions Week reported on internal discussions over the correct management approach. “People cared more about getting the right partner, with the right quality of people and the right mindset,” concluded PPF chief executive Alan Rubenstein at the time.
Consultancy PwC is currently analysing this issue and working on the legal framework of the fund. Despite this ongoing evolution, earlier this year, the platform announced two further pension funds making a “soft” commitment of £100m.
NAPF chief executive Joanne Segars rejects the suggestion the project has been held up by these considerations. “All we planned by the beginning of this year was to do fundraising and finding investors. There have not been any delays. We have been working very hard and making very good progress,” she said.
The platform will become an influential player in the market, and will also have a positive effect on fees, Segars believes. “One reason that pension funds don’t like the current infrastructure market is because fees are very high. We are putting pension funds in the driving seat by saying to managers, ‘We are not going to accept the old model of 2/20 or even 1/10.’
“We have been very clear that by coming together, by using a collective bargaining power, then we should be better able to do that. I think it will be influential in the market. And that’s one of the side benefits of something like Pip.”
At the moment the founding investors are all large pension funds, but there is room for smaller schemes as well. Segars says the interest in this asset class is growing. “There are more pension funds who are able to evolve to being able to invest in this asset class, which they could not do before because it was not really suitable for them, particularly smaller funds.”
Any homegrown investment project will find tough competitors from these shores and further afield. Australian managers that have already been investing in infrastructure for a number of years have turned their attention towards the UK.
Robin Miller, head of debt investments at IFM, says: “A number of factors have come together to make infrastructure debt a viable asset class to a whole new range of investors, which are broadly pension funds.”
In the past, the major financers of infrastructure projects were governments and banks, but the picture is changing. “Governments are now terribly capital constrained. Banks are also constrained because of capital adequacy. So what that means is [that] the normal sources for capital infrastructure debt are not available,” Miller adds.
For the full The Specialist report on property and infrastructure, go here to find the PDF.
Pip has outlined areas such as utilities, transport and renewable energy as possible investments.
Paul Malan, senior partner at iCON Infrastructure, explains why regulated industries can be a safer bet: “They generally have some sort of protected market position. To some degree they have a guaranteed market for their services, and as a result they are not exposed to some of the things that you see in more classic private equity-style investments. If you invest in a gas electricity transmission, you know that it will still be there in 100 years.”
European schemes who want to join the platform are welcome, but the priority for Pip is giving it a structure and getting management, Segars says. Recently she was in Vienna to speak with members of the PensionsEurope lobby group.
“A number of [them] have said, ‘We are interested to find out more.’ That could be very interesting. But I think that is a bit further down the line.”
Meike Wijers is a freelance journalist
