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NAPF and PPF confirm creation of pension scheme infrastructure fund

08 March 2012

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Alan Rubenstein, chairman of the Pension Protection Fund (PPF)  and Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), have confirmed the launch of a new UK infrastructure platform for pension schemes.

Speaking at the NAPF's annual Investment conference in Edinburgh , the pair said that the platform would be in place by January.

The fund will initially aim to raise £2bn and Segars said that the NAPF and PPF are currently in talks with a variety of pension schemes to find 10-12 funds who are willing to be the first investors in the project. They claim that feedback from the industry has been good and so are optimistic over the platform's future.

Rubenstein said: "We are not looking for a platform that solely focuses on infrastructure equity but also debt, there will be a 50/50 divide, as we see it. Pension schemes want to own whole projects so that income is flexible, easy, and is linked to inflation."

The goal is to raise 2-5% over the RPI  inflation measure. "We see it as a less risky investment than government bonds," Rubenstein said. The PPF's chief executive added that the idea was simply to "take advantage of a natural supply of assets which offer good opportunities for schemes".

Segars confirmed that the platform would make investing in infrastructure possible for small schemes, rather than just the larger schemes. "It will be a fund by pension funds for pension funds." Asked whether it would also include large local government schemes she said they could "potentially" be included.

As schemes do not want to take on the construction risk involved in infrastructure, but rather buy finished projects, the idea is to seek government guarantees which will cover the former's risk. However, Segars confirmed  that this topic is still "very open," indicating that no real promises have been made by the government as of yet.

The parties stressed the fact that though this project was set up after agreeing on the idea with the Treasury, this would very much become a fund "like any other commercial fund".

Who will run the scheme is as of yet undecided, though it is possible it will be run by a team set up for the specific purpose.

In November George Osborne said the Treasury was seeking to raise £20bn through infrastructure, yet Segars said the current £2bn was a more realistic goal at the moment.

"The Treasury looked at all the schemes and projected their figure on the possibility that all would increase their infrastructure allocation by 2%," she said. With only a select group of schemes entering in the first couple of years and based on the possible projects coming up in the UK, the NAPF and PPF feel £2bn is a good goal to work to.

"The Treasury do not care where the money is coming from, they just want to see an investment in infrastructure – no matter who does it. We're on the same page on that but have very different reasons," Rubenstein said.