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Government infrastructure fund on track to launch early next year

26 July 2012

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The first multi-billion pound infrastructure fund in the UK to be funded by pension scheme investors seems to be on track to be launched early 2013 as the pensions industry has shown strong support for the plans.

The fund is to invest up to £20bn in government projects such as roads and power plants, through investment vehicles such as the Pension Infrastructure Platform (PIP) in a bid to support the UK's failing economy.

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), which is supporting the fund, told Reuters the PIPwas to launch on time despite initial worries that the vehicle was not attracting the numbers it would need to succeed.

Though not confirming any numbers, Segars said: "We are close to getting our pool of founding members. A good number of pension funds have signed up."

The PPF and the NAPF work together with the government on setting up the scheme and have said initially the fund is aiming to raise up to £2bn from around 10-12 pension fund investors.

Currently there is only one pension scheme, the Strathclyde Pension Fund, that has signed up, but other have shown a strong interest, among them are the London Pension Fund Authority (LPFA), which has £4.2bn worth of assets, and the Merseyside Pension Fund, which has around £5bn worth in their portfolio. However, these local government pension schemes have expressed concerns that they are not going to be able to invest huge amounts in the vehicles as regulatory restrictions - which see a 15% cap on infrastructure, private equity and real estate investments - limit what they can do.

The £32bn Universities Superannuation Scheme (USS), which already invests heavily in infrastructure, has also said it would be interested in working with the PIP.

To make it more attractive, last week the government made some concessions to limit the risk of investing in infrastructure; the fund will invest in projects that are already built and earning income or projects where the government will take on some of the construction risk. The expected returns of the investments should lay between 2% and 5%.

Speaking to Reuters, Segars said these guarantees would give pension funds "more confidence" to invest but the LPFA said it would still like to see more detail on the guarantees. It also said it would like to know how many other pension schemes were signing up.

Currently UK pension funds allocate only 2% of their portfolios to infrastructure investments on average though interest in the sector is growing.

 

First published 26.07.2012

azeevalkink@wilmington.co.uk