The London Pensions Fund Authority (“LPFA”), one of the largest Local Government Pension Scheme (“LGPS”) funds in the UK, today announces it has committed as a signatory to the Pensions Infrastructure Project (“PIP”), a £2bn investment fund backed by major corporate and local pension funds.
The PIP, an initiative launched by the National Association of Pension Funds (“NAPF”), has been established with the support of 10 pension funds. The fund will have aggregate commitments of more than £1bn from founding signatories including the BT, Lloyds and British Airways pension funds, and will eventually reach £2bn.
The Fund, which has been developed for pension funds by pension funds, is fully independent of the government, although it maintains a constructive relationship with HM Treasury. The PIP will invest in UK infrastructure projects across a variety of sectors, and will not only help the government to finance major, long-term infrastructure projects that are crucial to boosting economic growth, but will also deliver attractive returns for the pension funds involved.
Infrastructure investing has many of the return and risk characteristics required by pension funds, providing a long-term, low-risk investment that delivers liability-matching, inflation-linked returns. With a target size of £2bn the PIP is expected to invest in core infrastructure, and in projects free of construction risk and on an availability basis. It will feature low leverage of no more than 50% per project, and across the PIP as a whole. Fees will be low, at around 50bpts. Investments will be inflation-linked and the fund is seeking long-term cash returns of RPI +2 to 5%.
Edmund Truell, LPFA Chairman, commented:
“Recent political commentary has raised the debate surrounding infrastructure investing and its benefits to the UK economy. The government has estimated funding needs of between £40bn and £50bn in infrastructure annually over the next decade, and this new fund will form a material part of meeting those needs. We are delighted to able to support this initiative while at the same time being confident that our funds will enjoy attractive, risk-mitigated returns.
“While investment through the PIP will be dedicated to pre-existing infrastructure projects, freed funding will in addition allow the UK government to commit to new construction of schools, hospitals and roads. That is a clear and direct benefit to society and to the economy.”
Mike Taylor, LPFA Chief Executive, commented:
“The LPFA is committed to meeting its liabilities for the long-term benefit of pensioners, and the PIP achieves that. Aggregating smaller pools of assets under a larger management structure makes sense for infrastructure investing, allowing us to provide the scale of funding these large projects require, increasing our bidding power, providing better access to expertise and lowering fees. We are delighted to be at the start of what we expect to become a real boon for UK pensions management and for the economy and society at large. This will also accelerate our investment in infrastructure with a significantly greater concentration on the UK; London and the South East will be a clear beneficiary of the investment programme.”
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