Full steam ahead on infrastructure investment

April, 2012 Print

Full steam ahead on infrastructure investment
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The National Association of Pension Funds (NAPF) and the Pension Protection Fund (PPF) have signed a memorandum of understanding with the Treasury over an initiative to facilitate pension fund investment in infrastructure.

According to comments from NAPF chief executive Joanne Segars, and PPF chief executive Alan Rubenstein, at the NAPF Investment Conference in Edinburgh, the hope is to raise £2 billion from UK pension funds for a fund which will launch in January 2013. It is hoped to raise £1 billion from 10-12 of the largest UK pension funds, with other pension funds contributing another billion. Additional borrowing could be used to increase the fund size to £4 billion.

The infrastructure fund will aim to avoid construction risk, which pension funds wish to avoid according to Segars and Rubenstein, and will aim to generate an annual return of inflation plus 2-5% from long duration, low risk projects, in order to help pension funds match long-term, inflation-linked liabilities. The Treasury has called for more pension fund investment in infrastructure, so it is keen to see the idea bear fruit and has talked over an additional £20 billion investment from UK pension funds.

Rubenstein said reports that the fund would have annual fees of around 0.5% were inaccurate, as the fees have still be decided. A decision also has to be made over whether to appoint an external manager or managers, or hire in infrastructure investment expertise. He commented: “When I talk to pension funds, they want to access long-term inflationlinked return characteristics. The fund would look to buy assets, run them and draw down inflation-linked income. Pension funds want that to match liabilities.”

CALL FOR MORE INVESTMENT IN SCOTLAND
At the NAPF Investment Conference, the first minister of Scotland and Scottish Nationalist Party leader Alex Salmond called for more pension fund investment in Scottish infrastructure projects. He said that Scotland had a whole series of shovel-ready projects compared to England and a £60 billion infrastructure investment plan. In particular, he highlighted Scotland’s potential for renewable energy, saying: “Scotland has 25% of Europe’s offshore wind power potential, 25% of its tidal power potential and 10% of its wave power potential – giving us a massive comparative advantage in some of the key energy sectors of the future.”

When asked by NAPF chairman Mark Hyde Harrison if the prospect of Scottish independence would create uncertainty for investors, Salmond downplayed this, saying an independent Scotland would continue to use sterling as its currency. When Royal Mail Pension Trustees’ Geoff Lindey asked Salmond why English pension funds would invest in Scotland when the Scottish government was hostile to England, Salmond commented that that Scottish independence would lead to a better relationship with England, offering: “I don’t have an anti-English bone in my body” to ironic laughter from delegates.The National Association of Pension Funds (NAPF) and the Pension Protection Fund (PPF) have signed a memorandum of understanding with the Treasury over an initiative to facilitate pension fund investment in infrastructure.

According to comments from NAPF chief executive Joanne Segars, and PPF chief executive Alan Rubenstein, at the NAPF Investment Conference in Edinburgh, the hope is to raise £2 billion from UK pension funds for a fund which will launch in January 2013. It is hoped to raise £1 billion from 10-12 of the largest UK pension funds, with other pension funds contributing another billion. Additional borrowing could be used to increase the fund size to £4 billion.

The infrastructure fund will aim to avoid construction risk, which pension funds wish to avoid according to Segars and Rubenstein, and will aim to generate an annual return of inflation plus 2-5% from long duration, low risk projects, in order to help pension funds match long-term, inflation-linked liabilities. The Treasury has called for more pension fund investment in infrastructure, so it is keen to see the idea bear fruit and has talked over an additional £20 billion investment from UK pension funds.

Rubenstein said reports that the fund would have annual fees of around 0.5% were inaccurate, as the fees have still be decided. A decision also has to be made over whether to appoint an external manager or managers, or hire in infrastructure investment expertise. He commented: “When I talk to pension funds, they want to access long-term inflationlinked return characteristics. The fund would look to buy assets, run them and draw down inflation-linked income. Pension funds want that to match liabilities.”

CALL FOR MORE INVESTMENT IN SCOTLAND
At the NAPF Investment Conference, the first minister of Scotland and Scottish Nationalist Party leader Alex Salmond called for more pension fund investment in Scottish infrastructure projects. He said that Scotland had a whole series of shovel-ready projects compared to England and a £60 billion infrastructure investment plan. In particular, he highlighted Scotland’s potential for renewable energy, saying: “Scotland has 25% of Europe’s offshore wind power potential, 25% of its tidal power potential and 10% of its wave power potential – giving us a massive comparative advantage in some of the key energy sectors of the future.”

When asked by NAPF chairman Mark Hyde Harrison if the prospect of Scottish independence would create uncertainty for investors, Salmond downplayed this, saying an independent Scotland would continue to use sterling as its currency. When Royal Mail Pension Trustees’ Geoff Lindey asked Salmond why English pension funds would invest in Scotland when the Scottish government was hostile to England, Salmond commented that that Scottish independence would lead to a better relationship with England, offering: “I don’t have an anti-English bone in my body” to ironic laughter from delegates.

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