A new financial vehicle enabling UK pensions to pool their funds to invest in infrastructure is “very near to being set up”, Treasury officials insisted last week.
Speaking at the launch of the second National Infrastructure Plan, they said the launch of the new vehicle was imminent.
“They are very near to being set up − in the next three or four months,” said Treasury body Infrastructure UK chief executive Geoffrey Spence. “And the first money should be invested soon after.”
The comments came a week after bankers told NCE that UK pension funds were coming from “behind the curve” as international pension funds already heavily invest in infrastructure (News last week).
The Treasury has signed a memorandum of understanding with the National Association of Pension Funds and the Pension Protection Fund to help their members more readily invest in infrastructure. Officials hope that it will generate around £20bn in the next few years.
UK pensions ”lack skills’
Crédit Agricole head of project finance Liam O’Keefe said that one barrier for UK pension funds was that they lacked the skills to deal with infrastructure financing. “Eventually they might be able to start recruiting infrastructure professionals from banking teams for example, but that’s going to take a long time,” said O’Keefe.
Spence agreed but said that the Treasury was committed to helping pension funds tackle their lack of infrastructure investment experience. This is why it is looking at pooling investments.
“At the moment they don’t have the capability to do that, because they don’t have the people,” said Spence.
He added that currently pension funds were only being offered the chance to invest equity in projects − which is not what they want. Instead, Treasury will offer help with arranging the investments and will charge a fund management fee.
While he expected that this would mean it would have to staff up, Spence could not give details on numbers.
Bankers last week also warned that UK pension funds were not as well suited to infrastructure investment as those in places such as Australia or Canada, which have large state, or quasi-state pension funds.
Commercial secretary to the Treasury Lord Sassoon said that UK pension funds and insurance companies recognised that they had been “underweight” in this area.
He added that where appropriate the government would help the UK pension market to invest in infrastructure by underwriting construction risk.
“What we should ask is if this is a project that the government needs to provide credit support to,” added Spence. “We’re saying…we want to see more infrastructure going ahead in the private sector…but the public will still play its part in supporting that.”