UK business organisation the CBI – which represents businesses employing around a third of the UK’s private sector workforce – has thrown its weight behind proposals that would involve London’s 34 councils pooling their pension funds to reduce administration costs and free up over £2 billion (€2.4 billion; $3.2 billion) for investment in the city’s infrastructure.
“These discussions are a welcome move, as pooling local government pension funds would not just reduce administrative costs it would also inject some much-needed investment into Britain’s ageing infrastructure, which is crying out for capital,” said Katja Hall, the CBI’s chief policy director, in a statement.
She added: “Pension funds are natural investors in infrastructure and will want to invest in projects that are designed to give returns, so we now need to see other public sector funds coming forward in this way.”
The proposals emerged from a meeting of London Councils, the representative organisation for London’s councils, and were first reported in the Financial Times.
Supporters of the plan believe it could cut £30 million from the councils’ annual administration costs. It is also an apparent endorsement for the UK government’s repeated calls for local pensions to play a greater role in funding the country’s infrastructure.
Among other plans, there has been talk of a so-called Pension Infrastructure Platform, effectively a pension-owned general partnership (GP) that would involve no more than 0.5 percent in management fees.
Meanwhile, some pension funds – including the London Pension Fund Authority and the Greater Manchester Pension Fund – are part of a group of investors that signed a Memorandum of Understanding with HM Treasury last year to find ways of generating more investment in both the construction and operational phases of infrastructure projects. The group also includes the likes of Meridiam Infrastructure and Pantheon.
However, unqualified praise of the proposals relating to London was not universal. Pension specialist John Hanratty of law firm Pinsent Masons said the plans should be “cautiously welcomed” but added:
“…Talk of allowing the fund to invest in infrastructure seems to be a bit of a red herring. The amount the combined fund could invest is not huge in infrastructure terms and the Government is really seeking to attract infrastructure investment from sovereign wealth funds and the mutual funds from the US, Canadian and Australian pension and insurance pots.”