When customers are not happy at what they're being sold, they usually switch to a rival option. When they can't – because too few companies offer the service they're looking for – they often club together to protest and drive a better bargain. And if that still doesn't work, the most entrepreneurial of them sometimes team up to create their own product.
That, in essence, is what the Pensions Infrastructure Platform (PIP) has been trying to do over the past three years. Led by the UK's National Association of Pension Funds (NAPF), the structure has been created to provide the country's institutional investors with access to infrastructure on terms that suit them. The need arose, its proponents say, at a time when most infrastructure vehicles were modelled on their private equity cousins; the PIP has since strived to offer a lower-cost, lower-risk alternative arguably better suited to pensions' liability-matching constraints.
This ambition was on full display this week, when the NAPF presented a comprehensive update on PIP's progress. The audience was reminded time and again that the platform was an initiative “by pension funds, for pension funds”, designed to cater for the needs of institutions of all sizes. It was also told that a year had passed since the PIP reached a £260 million (€355 million; $403 million) first close on its debut fund on Valentine's Day last year – a subtle hint perhaps of the love-hate relationship between pensions and fund managers, or perhaps to the ever-growing fascination they nurture for infrastructure's liability-matching magic.
What the PIP has achieved over the last 12 months is notable. It has continued to collect money for its PPP Equity PIP vehicle, with about £450 million raised to date and a final close – on the fund's hard cap of £600 million – expected by the end of September. Importantly, the Dalmore Capital-managed fund has not struggled to spend the cash: £255 million has already been invested in operational public-private partnerships (PPP), and another £170 million is locked in for preferred bidder positions.
The platform has also forged ahead with efforts to articulate a strategic vision – something that was seen as crucial after two years of gestation that led to “interest fatigue” and “confusion” over its ambitions. The first step was to appoint a chief executive, with Mike Weston taking the helm in September. It then proceeded to work on defining the remit of its second fund – which was unveiled this week as a £250 million, rooftop solar-focused venture managed by Aviva Investors.
This latest initiative appears to make sense. Aviva is a pioneer at putting together portfolios of rooftop solar assets, and has done rather well at it. By focusing on a little-known, less competitive sub-sector of infrastructure, the fund also encapsulates PIP's vision that the asset class is at its most attractive when considered as a collection of distinctive “niches”.
But it also raises important questions. PIP initially envisaged garnering a pool of capital of £2 billion. Assuming its first two vehicles hit their hard caps, PIP will still have to fill a gap of more than £1 billion. How will it do this? Weston says he has a plan: the platform, which will soon gain authorisation to manage its own fund from the Financial Conduct Authority (FCA), aims to raise the balance through a “multi-strategy infrastructure vehicle” – loosely defined as a “one-stop shop” for UK pensions to invest in infrastructure.
It will aim to invest in core UK infrastructure assets, with a long-term buy and hold strategy; it will charge 50 basis points fees and involve no minimum commitments. Exactly what strategies this fund will comprise, though, is not clear: the only certainty so far is that it won't target operational PPPs or rooftop solar assets, so as to avoid competing with PIP's earlier products. The vehicle may perhaps back third-party funds, leaving a question mark as to how many unexplored niches there are that will satisfy PIP's low-risk, low-cost criteria. Or it may invest directly, which presupposes a dedicated team of sufficient size – something PIP has ambitions to build, but doesn't have for now.
Whichever route the strategy the fund ends up prioritising, reaching £2 billion in assets under management could take some time. Provided the PIP manages costs and expectations accordingly, that needn't be a problem: Weston rightly emphasises that the platform, a not-for-profit organisation, follows a more flexible schedule than commercial operations. But it also means that only a limited amount of capital will likely be channelled through its funds, at least until the platform matures. That in turn could restrict the number of participating pensions, especially those at the larger end of the AUM spectrum. Meanwhile it will have to devise feed-in mechanisms to accommodate funds at the smaller end.
PIP is still a work in progress – and an innovative one at that. But in its current shape and size, it is too early to say whether it can successfully cater for the whole of the UK pension market.