From little acorns

For Mike Weston, being asked whether he wanted to become chief executive of the UK’s Pensions Infrastructure Platform was an easy question to answer. “When it arose, it was too good an opportunity to turn down,” he says straightforwardly. “There was no stress around should I do it or shouldn’t I do it.”

While applauding his commitment, some may be surprised that there was no hesitation. After all, the Pensions Infrastructure Platform – or PIP as it has become rather quaintly known – has not been greeted with universal adulation since it was first unveiled as a National Association of Pension Funds (NAPF) initiative towards the end of 2011.

For one thing, there was for a long time widely-expressed confusion about what precisely the PIP investment model would be. Then, in February this year, it emerged that three of PIP’s ten founding shareholders – which had each pledged ‘soft’ commitments to the platform of £100 million (€128 million; $159 million) each – had opted not to invest in the platform’s first fund.

However, Weston – who has been in the role just a few months, having taken the reins in September – is keen to clarify a few points. For example, there had been reports that the three funds which declined – the London Pensions Fund Authority, the BT Pension Scheme and BAe Systems – had walked away from the entire PIP concept. Weston maintains that they have simply passed on the opportunity to invest in the platform’s first fund and that PIP may still work together with the trio in future.

“It was recognised that some [of the pension funds] already had public-private partnership (PPP) exposure and would not want to be in this first fund,” he says. “Not all of the founders will want to be a part of all the funds.”

Formal selection
The fund referred to is a PPP-focused vehicle being managed by London-based fund manager Dalmore Capital – named the PPP Equity PIP fund – which Weston tells Infrastructure Investor has so far raised around £350 million on its way to a £600 million target. Backers so far have included PIP founding investors British Airways Pensions, Pension Protection Fund, Railways Pension Scheme, Strathclyde Pension Fund and West Midlands Pension Fund.

Dalmore won the mandate to manage the fund after a formal selection process. This was competitive, Weston says, despite the fact that PIP has been described as a low-cost option for investors (as well as low risk), targeting fees of only around 50 basis points. “On our chosen terms, there was a lot of interest.” says Weston. “Some decided to ignore the terms when they applied but we’ve never been shy of what we’re all about.”

And what PIP is “all about” is essentially finding a way for UK pensions to sensibly take advantage of the opportunities that the infrastructure asset class presents – taking into account their wish not to take too much risk or pay out too much in management fees.

“Infrastructure is a great asset class for mature, defined benefit schemes as the cash inflows match the cash outflows that you need to pay. That’s the key issue. The problem has always been that it’s so difficult to access the asset class.

Infrastructure assets tend to be large so direct investment is difficult and fund managers have come from private equity backgrounds and used that model because there was no other model.”

‘Paying too much’
Having spent five years between 2009 and 2014 as chief investment officer at the DMGT pension schemes with responsibility for investments in a wide range of infrastructure funds, Weston says the organisation was subject to the kind of fees typically associated with private equity. “We were paying too much but there was no alternative,” he claims. “Furthermore, you had 25-year assets going into ten-year limited partnerships, which is not a great structure. So the pricing and structure was wrong and access was difficult.”

In recognition of this, the NAPF – a lobbying group on behalf of UK pensions – gathered together a group of pension fund representatives to hammer out the PIP concept. Spearheading the effort was Joanne Segars, chief executive of the NAPF.

“Technically, NAPF owns PIP,” says Weston, himself located in the NAPF’s offices in the City of London. “Joanne has established, built and run PIP and got it as far as the Dalmore fund launch to demonstrate the concept.”

Now, it’s time for Weston to take the baton and run with it. “Going forward, it [PIP] needs a significant time commitment,” he says. “I’ve only been here since September and I already have a big ‘to do’ list. To keep the momentum going is definitely a full-time job.”

Eventually, he concedes, PIP and the NAPF will grow apart. “NAPF is a policy organisation and PIP is an infrastructure manager so the two organisations are very different. At the moment there are advantages to the relationship but going forward we will be doing different things and it’s important we’re seen as a standalone manager.”

In his brief time in the job, Weston has identified a couple of key objectives to concentrate on in the near term. One is the need to communicate the PIP concept.

“The launch in 2011 to 2012 was communicated but then there was a period of internal discussions when there was no news,” Weston says. “Then there was coverage of the Dalmore fund launch and now there’s interest in my role which has put PIP back in the spotlight.”

He intends to make sure that UK pensions are now fully aware of PIP and what it is seeking to do. “I want to get more pensions to invest in the Dalmore fund and I want to find more investment opportunities which match our search for low-risk, contracted opportunities with low fees. We are finding that certain areas, such as infrastructure debt and renewable energy, do fit this profile.”

Authorisation
The second major priority is for PIP to be awarded authorisation to manage funds by the Financial Conduct Authority (FCA). “We are getting the application in and then there will be a period of time, probably around six months, where they will look at it and hopefully approve it,” says Weston. “It’s difficult to predict the timeframe though because, although it’s a fairly plain vanilla investment concept, there are no other models exactly like ours in the UK.”

Once authorisation has been received, the significance is that PIP will then be able to invest funds directly without having to hire third-party managers. However, the second PIP vehicle – which is expected to be launched in the coming months – will once again go to a third party.

“Ultimately, we’re likely to have a mix of external funds and direct, internal funds – with the balance shifting more towards direct investing over time. But we could be talking about a 10 – to 15-year plan.”

Asked about the £2 billion fundraising target that has often been cited with reference to PIP, Weston explains that this is the overall target for the Dalmore fund, fund two, and the third fund which is expected to be managed by PIP itself.

As the first PIP full-time employee, Weston is aware that – beyond more immediate priorities of developing the range of investment opportunities for its members, building the client base further and putting together internal corporate infrastructure – he will eventually have to build a team around him. In a way, though, this is a ‘chicken and egg’ scenario – he can’t build a team until the rationale for that team exists.

“There’s no point having a big team before we get authorisation, as it will mean a lot of cost and they won’t be able to do anything. When you do get that authorisation then you need to be ready to go, but we have to be realistic about when that will happen.”

‘Open for business’
Weston says he has found the response to PIP to be “very positive” but acknowledges that progress can be sedate in terms of commitments as “pensions move quite slowly and the consultants are the gatekeepers. My job is to say we’re here and we’re open for business”.

He adds that the Dalmore fund has already invested around two-thirds of the capital it has raised so far – in typical PPP assets such as schools, hospitals and Ministry of Defence assets – which means that, helpfully, it’s “not a blind pool” as far as potential investors are concerned.

In seeking to grow PIP, Weston is able to take inspiration from one very obvious comparator. In Australia, IFM Investors was launched as far back as 1990 and is now owned by 30 major, not-for-profit Australian pension funds and manages A$53 billion (€37 billion; $46 billion) in total, with A$21 billion of that total in infrastructure. Although PIP has a long way to go to reach that kind of scale, Weston acknowledges that IFM is an appropriate reference for what his own organisation is hoping to achieve and seems comfortable with allusions to PIP as “the UK’s IFM”.

Others may also be following IFM’s lead. In Switzerland, for example, a €247 million fund was launched in July by the not-for-profit IST Investment Foundation with a number of Swiss pension fund investors and an aim of investing one-third of its capital in the Swiss market. Since “different domestic markets have their own rules”, Weston believes that aggregating local capital in this way makes sense.

Of course, if PIP is to grow significantly, it needs to be nourished by a steady flow of opportunities in its home market. Although the UK government impressed onlookers with its ambition when it launched the £375 billion National Infrastructure Plan in October 2010, it appeared to be focused on the kind of assets that would serve to drive economic growth but would not necessarily be viewed as suitable investments for pensions.

“There are opportunities but the government needs to reorganise them into low-risk and inflation-linked subsets that are appropriate for pensions,” argues Weston. “These characteristics don’t match with a lot of the assets in the National Infrastructure Plan.”

Minister needed
In October, the NAPF called for the creation of a government ministerial post with sole responsibility for infrastructure as a way to, in Segars’ words, “open the door to large-scale pension fund investment in the UK’s infrastructure”. Asked about this, Weston says: “You need long-term stability of the regime in which you’re investing. That regime could be better supported if someone was focused solely on infrastructure full time and knows the mind-set of infrastructure investors. We don’t expect favourable treatment, just a framework and a supply of opportunities.”

Asked about his ultimate vision for PIP, Weston smiles. This reaction is understandable – he may perhaps be thinking that, having only just had time to put his feet under his desk, being asked to look too far ahead is a tad unfair.

Nonetheless, he pauses before offering a highly plausible answer: “I would like PIP to invest in both external and internal opportunities, be an obvious part of any consortium looking to buy UK infrastructure – and not be a sleeping partner – and have a positive public profile which means it makes sense for us to be a partner.”

In the rather shorter term, Weston is pondering his ‘second job’ as a weekend taxi driver for his near-teenage children. In rare moments to himself, he likes “making stuff”, including a tree-house which he says is around halfway to completion. This is a man clearly not daunted by the prospect of a challenge.