Foresight’s PIP acquisition closes an important chapter of UK infra investment

Once thought of as ‘the UK’s IFM’, the Pensions Infrastructure Platform story teaches investors some important lessons.

When historians pick through the legacy of former UK chancellor George Osborne, it’s likely austerity, Brexit and a badly-aged courtship of China will be at the forefront – and not in a particularly positive way.

However, he was also a staunch proponent of getting Britain’s pension funds investing more in infrastructure, stating in 2011 that pension capital could provide about £20 billion ($25.20 billion; €22.07 billion) needed to fund Britain’s infrastructure projects.

One of the results of this was the Pensions Infrastructure Platform, the body set up in 2013 by an initial 10 British pension schemes. Lofty ambitions were the name of the game. In a 2011 statement from the National Association of Pension Funds – after signing a memorandum of understanding with the government – the body said such a platform “could allow UK pension funds to pool their resources and allow them to invest in key UK infrastructure assets and projects in a new way”.

Indeed, the Strathclyde Pension Fund, one of the founding investors, compared the PIP’s aims to Australia’s IFM Investors, stating in June 2012 meeting documents that IFM’s success in infrastructure investment propelled by a superannuation fund-owned model was “worthy of note”.

These grand ambitions and Osborne’s legacy came to a halt last week when it emerged Foresight Group had acquired the PIP, adding to the group’s 17 assets in sectors such as renewables, energy-from-waste, social infrastructure and transport.

Speaking to Infrastructure Investor after the deal, Foresight’s head of infrastructure, Nigel Aitchison, described the move as a “natural evolution”, although it’s doubtful Osborne and the other signatories to that 2011 MoU would agree.

There were times when the PIP looked like it could achieve the aims it had set out. Deals like its Dalmore Capital-managed participation in the Thames Tideway “super sewer” was seemingly along the lines of what had been envisaged. And when we posed the question to then chief executive Mike Weston in 2018 as to whether the PIP would consider funding new UK nuclear projects on a regulated asset base model, he responded with a counter-question: “Why would we not look at it?”

Furthermore, the PIP’s extensive investments in assets such as brownfield renewables helped boost the exposure to infrastructure for a group of pension funds that had previously been crying out for accessible options to invest in the asset class.

But the “UK’s IFM” it was not. Its early years were riddled with the question of whether it should be a “British pensions for British infrastructure” platform and an extra flow of capital for an austere government, or just the pooling of several UK schemes looking to scale up their infrastructure investments and invest directly.

This riddle remained unanswered and in 2014 the London Pensions Fund Authority, BT Pension Scheme and BAE Systems departed the scheme, with the pricing, risk-return structure and its cost structure failing to meet the requirements of the LPFA. Another division of interests in 2017 meant its flagship Multi-Strategy Infrastructure Fund saw its target downsized to £600 million from the original £1 billion.

Given the above, it feels quite inevitable that the PIP was subsumed by another infrastructure manager. While it had served its surviving members with exposure to infrastructure, its “commitment to try to make it easier for pension funds to back major infrastructural projects”, as envisioned by then NAPF chief executive Joanne Segars in 2011, fell short.

It’s significant that the LAPF, after its departure from the PIP, went on to co-create infrastructure investment platform GLIL – alongside local pension funds from Greater Manchester, Merseyside, West Yorkshire and Lancashire – and has invested in assets such as ports, rolling stock and water. The platform is now looking for further UK pension schemes to join its regulated structure.

A separation from politics may well have helped the GLIL succeed, but, just as crucially, ambitions have been modest and growth tempered. After all, IFM wasn’t built in a day.

Write to the author at zak.b@peimedia.com