Picture this: you’re a limited partner (LP), sitting in your boardroom, about to hear a pitch from an investment platform that aims to pool like-minded LPs to invest in that hot ‘new’ asset class – infrastructure.
Said platform, going on its second year, has just started looking for a manager – although it hasn’t yet decided whether to outsource management, develop it in-house, combine both, and/or award one or more management mandates.
It also hasn’t quite made up its mind – or at least articulated it clearly to the outside world – on how it intends to invest in the asset class: Will it target mostly brownfields or will it also take on construction risk? Is it going to invest primarily in infrastructure equity or will it also dabble in debt?
Finally, even though it has already ‘raised’ £1 billion (€1.2 billion; $1.5 billion) of its £2 billion target size, that £1 billion is really just a declaration of intent, “subject to the [platform] being established on satisfactory terms,” its 10 founding members state on a joint release.
Would you write a cheque for that platform? That’s the dilemma that popped into Infrastructure Investor’s collective mind this week when we read the UK’s Pensions Infrastructure Platform’s (PIP) request for expressions of interest (EOI) for an investment manager.
We were even more befuddled when said EOI request read like a wide-open field. That is, the PIP has yet to decide whether it wants to develop an in-house management team, outsource management or implement a hybrid solution.
To add to the uncertainty, it’s also open to awarding several mandates, perhaps combining all of the above options, i.e., an in-house team managing £500 million with a third-party manager running the remaining £1.5 billion.
Furthermore, while the PIP says it wants “an investment manager, or managers, with a strong track record, expertise […] and an alignment with the interests of pension funds as long-term investors,” previous statements suggest it’s not interested in paying much for those services.
“The aim is that [the PIP’s] the sort of platform that wouldn't charge any more than 50 basis points for its services,” Geoffrey Spence, the head of Treasury’s Infrastructure UK, told Professional Pensions early last year.
All of this confusion would be expected if infrastructure really were a ‘new’ asset class and the concept of pooling like-minded LPs to invest in it was a groundbreaking one. But this is simply not the case.
On the other side of the world, Industry Funds Management (IFM), owned by 30-plus Australian superannuation funds, gave a master class on the sort of “social privatisation” model the PIP aspires to with its recent $5.3 billion purchase of two ports in New South Wales.
“With over 80 percent ownership by Australian industry superannuation funds, the investment will benefit the superannuation savings of an estimated five million Australians – including more than 1.5 million in New South Wales,” IFM chief executive Brett Himbury told us following the deal.
Plus, the New South Wales government has committed to recycle the sales proceeds to develop new infrastructure across the state. That’s precisely the sort of approach Chancellor George Osborne had in mind when he first encouraged the PIP’s formation. But while the PIP dithered, IFM stepped up.
If all this sounds tough, it’s borne out of frustration at seeing such a huge opportunity pass by.
As many have pointed out, the UK pension market needs to consolidate to become a heavyweight player in infrastructure. The PIP is the perfect starting point for that. Its reasoning is solid and it's born out of UK pension funds looking around and asking themselves why they are failing to capitalise on the UK infrastructure opportunity being abundantly seized by so many foreign investors. But it needs to get its act together and fast.
Its members’ dilemma is simple: do they really want to commit to infrastructure via a pooled structure? If so, there are plenty of successful existing models to follow.