UK pension platform gets £100m ‘soft commitment'

The £11bn Strathclyde Pension Fund has become one of the founding investors of the £2bn Pensions Infrastructure Platform. IFM is being used as the model for the new scheme.

At last week’s quarterly meeting, the Strathclyde Pension fund, a UK pension with £11 billion (€14 billion; $17 billion) of assets under management, approved a “soft commitment” of £100 million to the Pensions Infrastructure Platform (PIP), becoming one of its founding members.

The PIP is a scheme aimed at pooling together the resources of UK pension funds interested in investing in infrastructure. It is being set up after Treasury decried the lack of UK pension fund investment in UK infrastructure and is the result of a memorandum of understanding signed by Treasury and two UK pension bodies: the National Association of Pension Funds and the Pension Protection Fund.

According to Strathclyde’s quarterly meeting minutes, the PIP is targeting a “fund size of £2 billion, but may use leverage to achieve a final fund size of £4 billion”. The fund will have a 25-year life and is aiming to generate returns of 2 percent to 5 percent on top of the retail price index (RPI), a common inflation indicator. It is planning to launch January 1, 2013.

Initially, the platform will count some 10 to 12 founding investors, each of which will, like Strathclyde, commit a minimum of £100 million to the PIP plus £100,000 to help fund the scheme’s development – including the potential set-up of an in-house management team to help run the fund.

Strathclyde describes the PIP as a platform “run by pension funds for pension funds, as a not-for-profit company focused on providing returns”. The £11 billion pension also indicates that the management team’s “incentives would be aligned with the interests of the pension funds”. A third-party management team appointment, while not off the table, is not the PIP founders’ preferred option, Strathclyde indicates.

The PIP will also not be limited to investing solely in UK infrastructure.

“Specific investment principles will […] include limits on amounts to be invested, for example, in various geographies or sectors, and a minimum level of investment for the UK,” Strathclyde said. Target sectors include social accommodation, transportation, energy, environment and telecommunications, among others – both on the greenfield and brownfield side.

In fact, the pension platform seems to be shaping itself as the UK’s answer to Australia’s Industry Funds Management (IFM).

“The aims of the platform [PIP] have been accomplished before in Canada, by Borealis [the investment arm of the Ontario Municipal Employees Retirement System], and Australia, by IFM. The latter in particular is worthy of note. Owned by 32 Australian superfunds, it holds infrastructure assets worth £6.8 billion or its £21.7 billion total assets under management and has returned 12.3 percent annualised since inception in 1994,” Strathclyde pointed out in its quarterly meeting statement.