The plan to create a national platform to pool Local Government Pension Scheme infrastructure investments is progressing, with its launch date anticipated after the eight “regional” pools are up and running, Room151 has learnt.
LGPS funds and pools continue to make individual investments in infrastructure, with Swansea Council’s fund this week announcing it is looking to award a mandate for unlisted infrastructure equity.
However, Fiona Miller, chair of the LGPS cross-pool infrastructure group — a working group of officers — told Room151 that plans for a national infrastructure investment vehicle are still being pursued.
Miller, head of pensions & financial services at Cumbria County Council, said: “A national platform can’t be created until the other pools are in place. You need a small number of delegated people to negotiate contracts — coordinating this among 89 funds is not a way to get an effective negotiation.”
Miller said that the current focus is to get the “regional” pools up and running by the government’s deadline of April 2018.
She said: “We need to get all the pools over the line. The focus has, by necessity, been on governance requirements for these, rather than on infrastructure.”
Clifford Sims, head of the pension fund investment group at law firm Squire Patton Boggs, said: “With a couple of exceptions, the pools themselves are not up and running yet (only LPP and London CIV are authorised), so they don’t have either the assets to commit or governance in place to act collectively on new opportunities.”
He added that, aside from established infrastructure funds, direct investment opportunities are notoriously sensitive in terms of pricing so investors have to source deals directly if they don’t want to pay over the odds.
Miller said that the government, which originally touted pooling as a means of attracting more infrastructure investment, is still keen on a national platform.
She said: “Last week I had the Treasury and the Department of Communities and Local Government on the phone asking how we are progressing on the national platform.”
The exact design of the national vehicle has yet to be decided, she added, but said that regional pools will set their own requirements for the type of infrastructure asset in which they want to invest.
She said that she was relaxed about the fact that pools and funds are continuing to make their own investments in infrastructure.
“We can’t sit still for two years,” she said. “There are a lot of closed ended funds which are rolling off.
“The pools will be ready to accept assets from April 2018 but not everything will go over on day one — it will take several years of transition.
“For some pools, alternatives will be one of the last asset classes to move into pools because they are the most difficult to deal with”
Miller emphasised that the final decisions on the shape of the new platform and the transfer of funds was a decision for members, rather than officers.
In addition to Swansea’s mandate tender, Nottinghamshire County Council’s pension fund this week announced it has awarded Kames Capital a £300m buy-and-hold, fixed income mandate.
This will be invested in a portfolio of corporate bonds with a target yield of LIBOR +1.25% after fees, with the aim of creating a series of cash flows for infrastructure investment over the next five years.
Independent investment and governance advisor William Bourne, advised the fund on the deal.
Bourne said the mandate had been designed as a “buy and hold” structure because of the lack of opportunities in the market for infrastructure funding.
“There is no way you would get £300m for infrastructure funding away in one go at the moment,” he said.
