Infrastructure has been a hot topic among UK schemes over the past couple of years. With its long-term matching characteristics, it seems like a perfect fit for schemes looking to match liabilities, but inflows have been muted.
UK schemes have created “a lot of talk, not much action”, as Anthony Fasso, chief executive at asset manager AMP Capital told me this week.
So has little changed? Last year, John MacDonald, head of manager research at Hymans Robertson, said: “There is probably a lot of pent-up demand for infrastructure, which will be realised once the [Pensions Infrastructure Platform] is finalised.”
The Pip was finalised and launched at the beginning of this year, but with a less-than-stellar reception as two of its founding members retreated from the fund due to its risk profile.
One factor Fasso did point to was the competition UK schemes are facing from their international counterparts. He added that while UK trustee boards are still getting their heads around infrastructure as an asset class, UK infrastructure was “being snapped up by other pension schemes”.
UK schemes have created “a lot of talk, not much action”, as Anthony Fasso, chief executive at asset manager AMP Capital told me this week.
So has little changed? Last year, John MacDonald, head of manager research at Hymans Robertson, said: “There is probably a lot of pent-up demand for infrastructure, which will be realised once the [Pensions Infrastructure Platform] is finalised.”
The Pip was finalised and launched at the beginning of this year, but with a less-than-stellar reception as two of its founding members retreated from the fund due to its risk profile.
International competition
One factor Fasso did point to was the competition UK schemes are facing from their international counterparts. He added that while UK trustee boards are still getting their heads around infrastructure as an asset class, UK infrastructure was “being snapped up by other pension schemes”.
Indeed, the FT reported last month that Canada’s Ontario Teachers’ Pension Plan was interested in investing in HS2, the high-speed rail link between London and the north of England.
The CAD$141bn (£80bn) scheme already owns High Speed 1, as does fellow Canadian pension fund Borealis.
In 2010, the US’s biggest public pension fund, the $290.5bn (£180.1bn) California Public Employees’ Retirement System, invested in London’s Gatwick Airport.
One thing that cannot be disputed is the sheer size of these schemes. By comparison, one of the UK’s biggest schemes is the Universities Superannuation Scheme, which boasts £41.6bn of assets under management.
International schemes from Asia and North America are also attracted by the regulated nature of the UK infrastructure market.
In a competition, the international schemes have more cash to throw around. Also many of them have in-house investment teams which allow them to be more nimble.
Another issue facing infrastructure investment in the UK is the lack of suitable investment opportunities, which can make it difficult to put large amounts of capital to work.
AMP's solution to this problem is listed infrastructure, which allows schemes to put cash to work right away and to then draw down to invest in unlisted stock once it becomes available.
However, listed infrastructure does mean schemes forgo the much-sought illiquidity premium and introduce equity correlation, precisely what some schemes are trying to avoid.
We'll keep an eye on the flows to see which way investors lean.
