Exclusive: LPFA eyes club deals, strengthens infra team

London’s largest local government pension is also looking at sharing resources with fellow investors through an “asset liability partnership”.

London Pensions Fund Authority (LPFA) is looking to step up its direct involvement in infrastructure by bidding for assets jointly with public and private partners.

Susan Martin, chief executive of LPFA, told Infrastructure Investor that the institution is currently bidding for a number of projects in the housing sector via consortiums and co-investment platforms. Other assets it is looking at include tunnels, oil pipelines, railway stations, commercial property and sewer projects.

“It doesn’t matter whether you are a public sector investor or a private sector pension fund. What you really need is the scale and size to invest in infrastructure directly with other pension funds. That way you can manage the costs much more easily than if you were investing in a fund of funds.”

The asset class, she said, was well suited to pension funds as it provided them with “determined” returns for the long-term, helping schemes match future payments to pensioners.

With the government lifting the ceiling up to which public pensions can invest in limited partnerships from 15 to 30 percent of their assets under management last year – and providing clear support to infrastructure though the details it released on its £375 billion (€473 billion; $638 billion) National Infrastructure Plan – she reckoned a lot of public and private pensions were now looking to bolster their exposure to the asset class.

LPFA is no exception: Martin said the pension has about 4 percent of its assets invested in infrastructure but has a pipeline of new projects that would soon help lift this exposure. The fund has an 8 percent minimum return for its infrastructure investments but has been looking at assets capable of delivering 10 to 12 percent as well as others yielding 15 percent, she said.

Martin became chief executive of LPFA in January this year, shortly before the institution pulled out of the Pension Infrastructure Platform (PIP), a not-for-profit initiative launched by the National Association of Pension Funds (NAPF) that aims to collect up to £2 billion from UK institutions.

“Unlike the PIP which is moving ahead but not in a way which suited our own investment requirements, we’re looking at partnerships with others who have similar aspirations,” she explained. “We might have different partners for different projects because we just want to move ahead on this and do it at a price that’s good for us where we get the return we require.”

LPFA is in the process of increasing its infrastructure team, Martin said, and is currently looking to fill a couple of vacancies. But it is also discussing a possible “asset liability partnership” with other institutions, where two or three local pension funds would share their investment teams to manage assets collectively while retaining their accountability via a joint committee reporting back to each pension.

With £4.8 billion of assets under management, LPFA is London’s largest local government pension scheme. Its desire to bolster its direct investment capabilities builds on its experience at backing unlisted vehicles in various regions of the world.

Managers it has worked with include 3i Infrastructure (through the firm’s India fund), Henderson Equity Partners, Impax Asset Management, InfraRed Capital Partners, Meridiam Infrastructure and IL&FS Investment Managers.