With FCA authorisation under its belt the Pensions Infrastructure Platform wants to prove its sceptics wrong. Mike Weston also tells Stephanie Baxter about his proposition for the LGPS
At a glance
- Next steps to deploy capital for in-house fund and expand investment team
- LGPS could use PIP to invest in UK infrastructure rather than start from scratch
The Pensions Infrastructure Platform (PIP) has come a long way after it was first set up in 2012 by a group of pension funds with the support of the Treasury.
Critics have called its development too slow, and the exit of several big founding schemes early on lowered confidence. However, the PIP has made some big leaps this year, notably receiving the regulatory green light in January to directly manage assets.
It launched an in-house multi-strategy infrastructure fund in March with a target size of £1bn, reaching a first close of £125m in April.
Alongside the Financial Conduct Authority's (FCA) authorisation process, the PIP worked with the founding investors on what they wanted the in-house fund to look like.
Chief executive Mike Weston, who joined the PIP in 2014, tells PP: "One of the issues we've been trying to address is how to speed up the investment process by establishing a fund where PIP has delegated authority to make investment decisions. To get to that point all the founding investors had to take the PIP proposal through their own investment committee processes."
He says "things are ramping up now" with the next step to deploy the capital.
"We're making good progress on a couple of opportunities. We want to demonstrate to the outside world, especially to those sceptical of us, that we're a bona fide asset manager, can raise money and find projects to invest in."
He is very conscious that the first couple of deals have to be "slap bang in the middle" of what PIP was set up to do. "I don't think what we do will surprise anybody."
Weston says changes to the subsidies regime in renewable energy have prompted a lot of deals to come onto the market and there is a rush to get in. "A massive amount of installed solar capacity is now for sale, and a lot of shifting around of assets in the onshore wind sector."
With the internal infrastructure now in place, this year the focus is on growing the investment team. Investment director Ed Wilson who joined last year will bring three more people in by the end of year. The PIP will also appoint a non-executive chairman.
"We need to continually reinforce governance of the business as we grow," says Weston. "If we're asking institutions to trust us with their money they have to be confident we can look after it properly."
Some people have warned it may struggle to get more funds involved because its fees, which were very cheap when PIP launched, might no longer be as competitive. This is because it has pushed other infrastructure asset managers to drop their own charges to be competitive.
"I would say that's a success for the PIP," says Weston. "Also, any operating surplus we generate will go back to investors through lower ongoing fees. We only charge a base fee, there's no management carry, no performance fees, and no other hidden fees."
"Headline fees might have come down in the industry but you need to be careful to look at what the total fees are."
It is a fitting time to look at the PIP when there are plans to launch a national infrastructure platform for the Local Government Pension Scheme (LGPS). Similar to the PIP, an LGPS platform is also likely to be backed by the government given it wants to increase LGPS investment in UK infrastructure.
One option under discussion is to use the £500m joint infrastructure venture set up last year by London Pension Fund Authority (LPFA) and Greater Manchester Pension Fund (GMPF) as a founding basis.
However, there have been doubts over creating another platform that would effectively be very similar to the PIP.
"Critics say to us ‘it's taken four years to get the PIP to this point'. The question is whether it would be any quicker for the LGPS to create something similar? There was no shortage of ambition among the pension schemes that set up the PIP yet it still took a long time."
He also points out that infrastructure is still a tiny proportion of LGPS assets and the funds will need to consolidate other asset classes at the same time.
There is a risk it could take multiple years to set up another platform that is ultimately trying to do the same things as PIP, and cost a lot of money, he says.
"Establishing an infrastructure platform is not a quick and easy thing to do – so it would seem completely bizarre to go through the whole process again from scratch to try and achieve essentially the same thing."
Could it work?
There are two ways for the LGPS to use the PIP. The quickest and easiest option would be to invest in the PIP fund – which already counts Strathclyde and West Midlands among its founding investors.
"But we can understand why the LGPS, with such a big potential pot of money, would want to own something itself," acknowledges Weston.
So another option is establishing an LGPS fund that would sit alongside and mirror the PIP fund. It would use the same team and invest in the same kinds of assets across the bigger combined pool of capital to secure even more efficiencies of scale.
"This would give the LGPS ownership but with the PIP system running it on their behalf," says Weston. "The legal documentation would just be derivative of what's already in place for the PIP so it would be a darn sight easier, quicker and cheaper than starting something from scratch. We could start getting money in the ground before the Autumn statement and if there is more scale on the PIP platform then everyone will benefit from lower fees."
Even if the LGPS does not go down this route, it should at least take lessons from the PIP. What has Weston learned from the process?
"Theoretically it looks easy but it always takes longer than you expect it to, even when you have really supportive participants and the objective is clear. That's because you're dealing with the retirement incomes of thousands of individuals, and trustees quite rightly want to ensure they don't compromise those retirement savings."
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