Governments in both the U.K. and the Netherlands are helping to pave alternative routes to infrastructure investing for pension funds.
The first group of investors under Britain's new Pensions Investment Platform is expected to be announced within the next six weeks, according to sources familiar with the matter. The government-backed initiative was created to pool pension assets to directly invest in domestic infrastructure projects and allows investors to potentially sidestep the typical private equity structure — and its high fees.
Another separate initiative led by consultant Redington Ltd. and law firm Pinsent Masons LLP is also under way to find more efficient ways for pension funds to invest in infrastructure, according to Robert Gardner, founder and co-CEO of Redington, based in London.
Britain's PIP is expected to launch early next year with initial investments totaling about £1 billion ($1.6 billion). It will be jointly established by the National Association of Pension Funds, an industry organization representing about 1,200 pension funds with aggregate assets of £800 billion, and the Pension Protection Fund — the U.K. equivalent of the Pension Benefit Guaranty Corp. The £12 billion PPF, which has a 5% allocation to infrastructure, will also be an investor in the platform.
The platform will be established “on a not-for-profit basis, with a low fee structure to maximize returns for the pension funds,” said Alan Rubenstein, chief executive of the PPF, based in London.
Joanne Segars, London-based NAPF chief executive, added: “This is an initiative for pension funds by pension funds. ... It's truly designed around the needs of investors.”
Mr. Rubenstein added: “The impetus for us was that from the perspective of pension funds, what they want (from infrastructure investments) is a relatively long-dated, low-risk, inflation-linked cash flow stream. ... What's available — typically based on a private equity structure — is not delivering what pension funds are looking for. That has led us down the track that we've gone.”
While Mr. Rubenstein declined to specify details of the platform's structure before plans are finalized, he said several existing models have been analyzed. One notable example is Industry Funds Management, an infrastructure manager based in Melbourne, Australia, with about US$10 billion in assets under management that is owned by 32 pension funds. A second organization is Borealis Infrastructure, which has about C$9 billion (US$9.2 billion) in assets and is owned by the C$55 billion Ontario Municipal Employees Retirement System, Toronto.
“Neither is quite the same as what we're doing, but IFM is closer,” Mr. Rubenstein added. Unlike Borealis and IFM, the PIP might consider overseas institutions to invest alongside U.K. pension funds.