Leicestershire pension also commits £35m to KKR

The Leicestershire County Council Pension, a UK pension fund, has kick-started its debut infrastructure allocation with £70 million (€84 million; $110 million) of commitments to Kohlberg Kravis Roberts (KKR) and Industry Funds Management (IFM).
 
Yesterday, IFM announced that it was awarded a £35 million mandate from the UK pension – which it dubbed “one of the largest to be offered by a UK local authority” over the past year. Today, a spokesman from the Leicestershire pension told Infrastructure Investor that KKR was also awarded a £35 million mandate. KKR is currently raising an infrastructure fund targeting up to $2 billion.
 
Together, the two investments mark the pension’s debut infrastructure allocation, which amounts to 3 percent of its portfolio, the spokesman pointed out. For the moment, the pension has no further plans to increase its infrastructure allocation, with the spokesman explaining that it will take a few years to assess the allocations’ performance and take a view on whether to stay in the space, perhaps with a larger commitment, or exit altogether.
 
In its annual report for the financial year 2010/2011, the Leicestershire pension explained the rationale behind its move to infrastructure.
 
“The most natural asset for protecting the fund against its inflation risk is UK government index-linked bonds, but these are very expensive as there are a number of price-insensitive buyers and a lack of supply. As a result, the investment subcommittee has agreed to an initial three-prong investment strategy to obtain some protection against inflation [including] investment in infrastructure.”
 
UK pension fund appetite for infrastructure has been growing steadily, with a number of local pension funds making debut infrastructure allocations over the past year. These included the Northumberland County Council Pension fund and the Shropshire Pension fund – both of which respectively invested £20 million and £30 million in Global Infrastructure Partners’ second infrastructure fund, which is targeting a final close of $6 billion.
 
Australian fund manager AMP Capital also managed to attract local UK pension funds for both its equity and debt offerings. In August 2011, the Merseyside Pension fund invested £20 million in its European infrastructure fund, known as the Strategic Infrastructure Trust of Europe. And last December, the East Riding of Yorkshire Council Pension fund helped propel AMP Capital’s subordinated debt fund to a €284 million third close.