Schemes hold off infrastructure investment while Pip develops

Pip was set up to fund major infrastructure projects while offering schemes access to low-fee, index-linked income streams in the face of a low-yield investment environment. The platform's founders are in discussions over how to manage its assets, having so far attracted £1bn of its £2bn target. 

Ian Berry, head of infrastructure at Aviva Investors, said: “There are a significant number of UK pension funds who are saying ‘Well, I don’t really know what this Pip is going to do and I don’t know whether it’s going to be a good idea, but I do feel I have to wait until they’ve done something before I decide what I’m doing with my infrastructure allocation’."

But he acknowledged that if the plan is successful it could “change the environment” for the asset class.

Peter Hofbauer, head of infrastructure at Hermes GPE, which has a £1bn investment in infrastructure, largely on behalf of the BT Pension Scheme, said the manager supports the broader concept of “aggregating capital among like-minded institutions”.

A number of institutions are looking to see how Pip evolves before making a commitment, he added. “They may make a commitment to Pip, or not, but at this point they don’t know what it will look like, which is part of the problem.”

Some schemes were also concerned about “blind pool risk” if they commit money without any seed assets or team in place, Hofbauer said.

Some consultants have also shared their caution over the set-up. Julian Brown, head of investment consulting for the south of the UK at JLT Employee Benefits, said the company would be advising clients to wait until further details of Pip were known before committing assets to infrastructure. 

“The rational course of action for investors is to wait and see whether there will be any inducements from the government to invest in the platform – for example cheap leverage or subordination of returns in favour of pension fund investors," he added.

Joanne Segars, chief executive of the National Association of Pension Funds, which helped launch the initiative, admitted there were a number of schemes "looking to see what happens" with the platform.

"We have a core of 10 founding investors and we've had approaches from, and we're talking to other pension funds who are interested in investing in Pip once it's up and running."

The scheme has been talking to a "mixture" of public sector and corporate pension schemes within the "next tranche down" from its founding investors, which are keen to get involved once Pip is off the ground, she added.

Toby Buscombe, principal and senior infrastructure specialist at consultancy Mercer, said the increased exposure as a result of Pip has given the asset class greater “prominence” among trustees.

“We’ve had a lot more questions about the asset class from trustees and from clients since the initiative really started," he said. "It’s certainly helped in terms of increasing people’s awareness of the asset class, at a minimum.”