The London Collective Investment Vehicle (LCIV) LGPS pool is targeting a first close on a new unauthorised infrastructure unit trust, targeting net returns of 8-10%, by the end of April.
According to a London Borough of Camden report, the London pool has appointed investment firm StepStone as its “outsourced head of infrastructure” to run the new sub-fund.
The move follows changes to LCIV’s structure which previously prevented it from investing in the investment class.
Camden Council’s pension board this week recommended a 5% allocation of investments to the LCIV infrastructure fund, saying that its adviser KPMG believes “the infrastructure fund is fit for purpose and compares favourably against market comparison”.
The fund is set to target between 80%-100% of its investments in brownfield schemes, with the rest in greenfield.
It will also aim to hold 50%-70% of its investments in schemes based in Europe, with a UK focus.
The LCIV is targeting a first close in April 2019 and then further closes in July, September, December 2019 and April 2020, with subsequent closes in September annually.
Infrastructure investment was one of the main original drivers for the LGPS pooling process.
Announcing the initiative at the 2015 Conservative Party conference, former chancellor George Osborne had said: “At the moment, we have 89 different local government pension funds with 89 sets of fees and costs. It’s expensive and they invest little or nothing in our infrastructure.
“So I can tell you today we’re going to work with councils to create, instead, half a dozen British Wealth Funds spread across the country.”
The following year, Osborne’s Spring Budget laid out the ambition of creating a single national LGPS infrastructure platform alongside the sub-national pools.
The Camden Council document suggests that co-investment in infrastructure with other pools was explored but shelved. It said: “Other pools could not offer an optimal structure so the CIV have chosen to go to market alone.
“However, the CIV will consider club deals with other pools in the
future.”
In January, Room151 reported that the government has launched a consultation on draft statutory guidance for LGPS pooling.
The document says that, although there is no target for infrastructure investment for pool members or pools, “pool members are expected to set an ambition on investment in this area”.
It added that “the government expects pool companies to provide the capability and capacity for pools over time to move towards levels of infrastructure investment similar to overseas pension funds of comparable aggregate size”.
The LCIV has an initial contract with StepStone for a minimum of three years and the fund will be structured as an exempt unauthorised unit trust with the LCIV’s custodian Northern Trust acting as master trustee.
According to the Camden report: “One of the key advantages of the structure is there is no element of fees charged on uncommitted capital.
“This incentivises StepStone to invest capital as quickly as possible whilst ensuring that management fees are not charged on uninvested cash.”
