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UK infra investment ‘imprudent’, London pension scheme warns

Concerns over asset renationalisation have pushed the Collective Investment Vehicle to pursue a more global approach to infrastructure.

Investing in UK infrastructure would be “imprudent” at this current time, a group representing some London-based pension funds has warned.

The concerns voiced by the London Collective Investment Vehicle were revealed in a meeting last week held by the Camden Council pension fund committee, which was discussing ways to make its first investments in infrastructure.

Camden is one of eight London-based pension schemes working with the CIV to create an infrastructure vehicle and noted that “the group is very well aligned” in its aims. The CIV believes “it would be imprudent to expose the London Pension Funds to regulatory and political risk”, according to the Camden fund.

“UK political risk is heightened in the aftermath of the Brexit vote, and relatedly, a potential future change of government could lead to a sharp repricing of core infrastructure assets due to concerns over renationalisation and regulatory changes to existing contracts,” the pension fund stated, saying this was the belief of the CIV. It added that returns on core UK infrastructure fail to provide adequate compensation for this risk.

The opposition Labour Party vowed to nationalise all existing PFI contracts in September, following the party’s pledge before June’s election to nationalise rail, water and energy companies.

The view offered by the CIV came after Camden’s admission that when it last considered infrastructure investment in 2014, it sought net returns of between 8 percent and 16 percent. At the time, it considered an investment in the UK-focused Pension Infrastructure Platform, although ultimately decided it was not an “attractive proposition”.

It has also contemplated investment in GLIL, the infrastructure joint venture between the Greater Manchester Pension Fund and the London Pensions Fund Authority, but said it lacks the geographical diversity the scheme would require. As a result, Camden said “all [CIV] members of the working group are agreed that a global product is the most suitable route”, although the group maintains it has not provided politically based advice.

“London CIV wishes to clarify that it has not issued and will not issue any advice to London boroughs about the impacts of a Labour government led by Jeremy Corbyn on any investments including infrastructure,” it said.