RPMI Railpen, the institution in charge of investing the £20 billion (€27 billion; $30 billion) total assets of the UK’s Railways Pension Scheme, has initiated sweeping changes within its infrastructure strategy in order to acquire the skills needed to operate “as if” it was investing directly.
In an interview with Infrastructure Investor, Paul Bishop and Richard Moon, respectively investment director and investment manager at Railpen, explained that the institution used to invest in the asset class through a dedicated pool fund of about £1.2 billion. The vehicle, created in 2006, was entirely deployed within the two years following its launch.
They said the company is no longer investing through dedicated pools, and is instead in the process of building two illiquid multi-asset funds. One is to be focused on growth assets (typically riskier ones, still going through their construction phase) and the other one on long-term, income generating assets (typically unlevered).
The size of these funds will stand at around £3 billion and £500 million to £1 billion respectively, according to both executives. They reckoned the long-term income fund would likely involve a “meaningful” exposure to infrastructure, while the growth fund would be more opportunistic in its approach to the asset class.
Railpen currently sees low-risk assets as expensive due to the active presence of “low-cost-of-capital players” in the market, Bishop and Moon said. The advantage of the new investment structure, they asserted, is that it allows Railpen to remain disciplined and patient.
The company also pursues the aim of getting closer to the asset, with a view to developing the capabilities an institution needs to invest directly – but “without necessarily doing so”. The idea for the team is to be in “full control” of the decision-making process and confident about its exposures.
Railpen’s former infrastructure pooled fund was exposed to seven different fund managers. As its new strategy gathers pace, the company will now be looking to create new fund relationships, Bishop and Moon said. It may not necessarily keep investing with the same managers.
The company could also seek to form partnerships with other UK pension funds, aside from its participation in the Pensions Infrastructure Platform (PIP), of which it is a founding member. It sees the platform as a good opportunity for investors to talk to each other, “something they’ve not be so good at doing in the past”.
Railpen is also looking to boost its private markets team from six people to 10 in the space of a couple of years. Some may be more focused on infrastructure, Bishop and Moon said, but no one will be explicitly dedicated to it.
The strategy shift comes in the wake of a broader review of Railpen’s governance and investment arrangements, started a couple of years ago, which aimed at reducing the number of layers of intermediation and streamline decision-making in the investment process.
This resulted in the creation of a new investment governance body, the Railpen Investment Board (RIB), chaired by an independent director.
Independent directors have a majority on the body with three more in addition to Paul Trickett, its chairman. It also includes two trustee directors and Chris Hitchen, chief executive of Railpen.