USS takes almost 9% of Heathrow

The UK pension has made its largest infrastructure investment in the country to date, handing Ferrovial £392m.

Universities Superannuation Scheme (USS), the UK’s second-largest pension fund, has agreed to acquire an 8.65 percent stake in Heathrow Airport for £392 million (€460 million; $636 million).

USS has reached an unconditional agreement with Heathrow’s biggest shareholder, Spanish developer Ferrovial, to buy the stake from holding company FGP Topco.

“We believe that investment in UK infrastructure is a win-win; promoting economic growth and jobs while providing attractive investments for the trustee board in meeting its commitments to members,” said Roger Gray, chief executive officer of USS Investment Management (USSIM) – a subsidiary of USS that will manage the investment – in a statement.

USS joins a cluster of other institutional investors and sovereign wealth funds with stakes in the busiest airport in Europe and third-busiest in the world. Investors include Canada’s Caisse de Depot et Placement du Quebec, Singapore’s GIC, US fund manager Alinda Capital Partners, China Investment Corporation and Qatar Investment Authority.

In November last year, Ferrovial revealed it had reached an agreement with shareholders which would allow it to reduce its stake from 33.65 percent to 20.0 percent without other shareholders having to reduce their stakes, which was previously required.

Heathrow was previously known as BAA but was re-branded following its forced divestment of Stansted Airport after a long battle with UK competition authorities in August 2012. Heathrow still owns Southampton, Aberdeen and Glasgow airports.

Investors in Heathrow are taking a gamble on the airport’s future, with speculation that it may lose its hub status if other London airports are grown at its expense or a new hub airport is built (as proposed by London Mayor Boris Johnson).

The UK’s coalition government launched the Davies Commission last year to make recommendations regarding airport capacity in the south-east of England. The Commission is due to release an interim report by the end of this year ahead of a final report in 2015.

Michael Powell, head of private markets at USSIM, expressed confidence in Heathrow’s future in a statement. “Heathrow Airport has a bright future as the UK’s only hub airport and we look forward to the outcome of the Davies Commission,” he said.

USS has previously shown a strong interest in the UK water sector, having made loans of £100 million and £95 million to South East Water and Affinity Water respectively. In May, it was part of a consortium including Canada’s Borealis Infrastructure and Kuwait Investment Authority that had a £5.3 billion proposal to acquire water company Severn Trent rejected.