• Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
  • Events
  • Whitepapers
  • Spotlights
  • Digital Edition
  • PPTV
  • Newsletters
  • Sign in
  •  
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
    •  

      You are currently accessing ProfessionalPensions via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Subscribe
  • Events
    • Upcoming events
      event logo
      Webinar: PP Talks - Fiduciary Management

      This PP Talks webinar will ask how fiduciary managers coped with the Covid-19 challenge, how fiduciary management clients generally fared, and the outlook for the year ahead.

      • Date: 05 May 2021
      • Webinar
      event logo
      Webinar: The challenges facing open DB schemes

      This webinar will help trustees and pension managers look at the challenges facing open DB schemes, specifically looking at the issues they could face as a result of The Pension Regulator’s new Funding Code of Practice and asking how this could affect the affordability of benefits, future service contributions, investment strategy and benefit design.

      • Date: 06 May 2021
      • Webinar
      event logo
      Webinar: Supporting members retirement plans as we emerge from the pandemic

      The pandemic has affected the retirement plans of many. Some have been forced into an early retirement because of redundancy, whilst others have delayed retirement due to their pension losing value. Those who have struggled with a reduced household income, have even been dipping into their pensions whilst still working to make up for the shortfall.This webinar will uncover the steps that can be taken to support pension scheme members in the lead up to and at retirement.

      • Date: 11 May 2021
      • Webinar
      event logo
      Risk & Scheme Funding Forum 2021

      Professional Pensions Risk and Scheme Funding Forum aims to help pension professionals see the wood for the trees. This half day digital event will consider risk as a whole; cyber, governance, climate, volatility and how they can affect the overall running of a scheme and its long term goals.

      • Date: 13 May 2021
      • Digital Conference,
      View all events
      Follow our Professional Pension Events

      Sign up to receive email alerts about our events

      Sign up

  • Whitepapers
    • How DC schemes can gain exposure to different asset classes in a low-return environment

      So far, DC plans have largely been focused on the onset of auto-enrolment and changes to the regulatory framework - be it the ‘charge cap,' ‘pension freedoms' or consultations around ‘value for money', says Annabel Tonry, Executive Director at J.P. Morgan Asset Management (JPMAM).

      Download
      Pension freedoms three years on

      In 2015 George Osborne, then the UK Chancellor of the Exchequer, decided that those age over 55 could take much more of their pension in cash. This has since opened up a range of possibilities for DC scheme members in the world of pensions.

      Download
      Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Spotlights
  • Digital Edition
Professional Pensions
Professional Pensions
Sponsored by T. Rowe Price
  • Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
  •  

    You are currently accessing ProfessionalPensions via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
  • Investment

UK schemes need to skill up to access infrastructure

PP asks why UK pension funds lose out to international rivals on infrastructure investments

  • Natasha Browne
  • 23 March 2015
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
0 Comments

Natasha Browne asks why UK pension funds tend to lose out to international rivals on big infrastructure investments

A 25% stake in London's King's Cross development is an attractive investment for UK pension funds. The 67-acre site includes offices, hotels, a university, shops and restaurants. Tellingly, however, it was the $84bn (£44bn) AustralianSuper that won the mandate in February.

It follows the announcement that Canadian pension fund manager Caisse de dépôt et placement du Québec (CPDQ) and Hermes Infrastructure bought the government's 40% shareholding in Eurostar for £585.1m. They faced competition from the £42bn Universities Superannuation Scheme (USS) and the £5bn Lancashire County Pension Fund (LCPF).

LCPF's chief investment officer Mike Jensen believes the fund was a close second to winning the bid. He says: "Part of the problem from our perspective was that this was relatively new ground for us. We hadn't already established strategic partnerships with any other investors so we were the sole bid for that particular asset."

Related articles

  • Woodford investors to receive third payment on 26 August as annual reports delayed again
  • How multi-national companies are providing pensions for mobile workforces
  • Mineworkers and British Coal schemes succeed in a rare US securities fraud class action case
  • Have investment managers improved their ESG approaches?

He adds: "That probably made us slightly less price aggressive than maybe we would have been if we'd been in consortium." LCPF is now in the process of partnering with the London Pensions Fund Authority (LPFA), which would approximately double the assets under management in a joint venture. Jensen says Lancashire has a reasonable appetite for large infrastructure deals.

Still, a significant barrier for UK schemes trying to access these projects is scale. A £5bn scheme will struggle to win a bid against a fund almost ten times its size. Another issue is allocation. Hermes infrastructure partner Hamish de Run says UK schemes allocate around 2%-3% of their total fund to infrastructure. This compares with 7%-10% for Canadian or Australian funds.

"Not only do we have smaller funds here in the UK and a much more diverse universe of funds, overall allocation to infrastructure is lower. Once you start multiplying that out, you become very small very quickly," de Run says.

According to Jensen, schemes need to build up their in-house resources if they are going to either contend with or cooperate with international rivals. He says: "There is a strategic question over whether you are prepared to pay for top-quality internal resource that will almost certainly ensure you pay less overall in turn of external fund manager fees."

Head of M&G's infrastructure investment arm Infracapital Martin Lennon notes that UK schemes have traditionally only accessed infrastructure indirectly. He says: "Their reliance on working with or through other fund managers or partners may be because they do not have the in-house expertise to access the asset class directly. And that's made it a lot more difficult in situations where a lot of infrastructure investments and businesses can be very large in size."

Experts predict pension fund investing in infrastructure will grow, albeit as much through defined contribution (DC) as defined benefit (DB). De Run says: "We think the DC area is going to be much more of a focus, which is really what the Canadians and Australians have. They're just continually growing."

Lennon adds: "DB still has a role to play but obviously with the rise of DC I think people like us are giving quite a lot of thought to how we can tailor access channels, products etc, to ensure all of the infrastructure asset class still works in a DC context."

Market changes

Schemes investing in the asset class a decade ago were met with a lot of risky funds, de Run explains. They were poorly differentiated and highly leveraged. In 2012, 22 schemes unsuccessfully tried to sue an asset manager for allegedly breaching its mandate after an infrastructure fund lost two-thirds of its value. But over the last four years, investors and managers are focusing on core infrastructure projects, which deliver more long-term stable returns.

De Run says: "The UK pension fund market is recognising that there are managers and access points out there that aren't as risky as they might have seen in the past. Previously it was a very private equity-style vehicle and you were asking ‘well is it private equity or infrastructure?' That market now is much more clearly defined."

Different funds also had varying experiences with external managers, USS head of real assets Gavin Merchant says. While some managers did a good job in acquiring the right sort of infrastructure assets at the right price, other funds experienced investments in some combination of the wrong assets, the wrong price and inappropriate capital structures, he says.

Merchant adds: "If your experience was of the latter kind, then greater control over the investment decisions is of much greater importance in driving the decision to go direct."

While Jensen agrees that manager fees can be expensive, he echoes de Run when he says the real issue in the past was that most infrastructure investments were private equity vehicles. That meant they had a seven to ten-year time horizon, which was too brief.

"We were ending up with relatively short-term investments that didn't chime with our underlying thesis for infrastructure, which is long-term cash flow, RPI-linked investments that we could maintain an interest in for 20-25 years," Jensen says.

In an effort to skill up, Lancashire has recruited experienced market professionals and is looking to hire more in the future. It is also hoping to meet with government ministers in the next few weeks to get greater direction on how it plans to run sales and privatisations going forward.

AustralianSuper’s investment in King’s Cross
  • The AustralianSuper made its second direct UK investment in February, taking a 25% stake in London’s King’s Cross 
  • One of Australia’s largest superannuation funds, it partnered with Hermes for the second time to secure the deal, and will join the King’s Cross Central Partnership 
  • The partnership includes Argent King’s Cross Limited Partnership, which is backed by Hermes, as well as Argent, DHL Supply Chain and London & Continental Railways 
  • The site includes eight million sq ft of offices, homes, hotels, leisure, shops, restaurants, a university, galleries, schools, community facilities and music venues 
  • AustralianSuper, which represents over two million members, was advised by its UK-appointed mandate manager, TIAA Henderson Real Estate 
  • The fund previously purchased half of the Centre MK shopping centre in Milton Keynes from Hermes in December 2013

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
  • Topics
  • Investment
  • Infrastructure
  • Lancashire County Pension Fund
  • Hermes
  • M&G
  • LPFA
  • USS

More on Investment

Carbon metrics and data are becoming increasingly important for schemes
How can schemes measure their carbon footprint

Schemes need to obtain emissions data to measure their carbon footprint, but this process comes with challenges. Stephanie Baxter explores how to overcome them and why schemes need to look beyond emissions

  • Investment
  • 20 April 2021
The fund is seeking emissions reductions across the portfolio
Environment Agency Pension Fund to halve emissions by 2030 and reach net zero by 2045

The Environment Agency Pension Fund (EAPF) will cut its carbon emissions by 50% from a 2010 baseline level by the end of this decade on its trajectory to net zero.

  • Investment
  • 20 April 2021
Nest head of private markets, Stephen O’Neill.
Nest bulks out portfolio with mega infrastructure deals

Nest has announced two infrastructure partnerships which will see the asset class make up 5% of its total portfolio.

  • Investment
  • 19 April 2021
The likelihood of trustees making incorrect decisions when choosing a fiduciary manager due to rudimentary performance metrics remains probable, EY says.
Exclusive: Trustees trapped by base level analysis choosing fiduciary managers

The likelihood of trustees making incorrect decisions when choosing a fiduciary manager due to rudimentary performance metrics remains probable, EY says.

  • Investment
  • 19 April 2021
Industry Voice: How Schroders are measuring the social and environmental impact of countries

Andrew Howard, Global Head of Sustainable Investment, explains how Schroders have further developed their proprietary impact measurement tool SustainEx™ to cover impact at a country level, looking at national externalities and countries’ contributions to shared global problems and benefits.

  • Investment
  • 19 April 2021
blog comments powered by Disqus
Back to Top

Most read

Exclusive: ITM acquires Profund Solutions from Mercer
Exclusive: ITM acquires Profund Solutions from Mercer
Schemes to be slapped with £1.5bn bill for equalising past transfers
Schemes to be slapped with £1.5bn bill for equalising past transfers
Exclusive: Trustees trapped by base level analysis choosing fiduciary managers
Exclusive: Trustees trapped by base level analysis choosing fiduciary managers
CMI: Deaths continue below normal levels
CMI: Deaths continue below normal levels
Cosan Consulting launches independent pension scheme data recovery service
Cosan Consulting launches independent pension scheme data recovery service
Trustpilot

 

  • Contact Us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading