Institutional investors eye January 2013 launch date for new infrastructure investment vehicle

UK pension funds are aiming to launch a multi-billion pound investment fund next year in move aimed at delivering on George Osborne’s pledge to attract up to £20bn in institutional investment into infrastructure projects.

Alan Rubenstein, chief executive of the Pension Protection Fund (PPF), said this week that the PPF, working in partnership with the National Association of Pension Funds and around 20 institutional investors were aiming to launch a new infrastructure investment vehicle in January 2013.

Rubenstein said the partners were aiming to raise up to £2bn in an initial fundraising drive, which could be leveraged to up to £4bn, with the investment focused on major UK infrastructure projects. The move follows a memorandum of understanding between the NAPF, PPF and government, announced last autumn, aimed at finding ways to boost institutional investment in UK infrastructure.

This is not a typical PFI project procurement - so progress will be made quickly

Geoffrey Spence, chief executive, UK Infrastructure

Rubenstein said he expected the fund to proceed with around a dozen core investors, who will provide the initial development capital.

The PPF was launched in 2005 to run the pensions assets and liabilities of companies with under-funded defined-benefit schemes that have folded. It has around £10bn under management. The NAPF represents 1,200 pensions funds that hold assets worth around £800bn.

Rubenstein’s comments represent the first significant sign of progress made towards delivering on the chancellor’s plan to boost institutional investment in UK infrastructure and follow a series of downbeat assessments of the plan.

Last week KPMG warned that British pension funds did not have the skill set to invest in infrastructure, while the UK Contractor’s Group, which represents Britain’s largest construction firms, called for the government to adopt a more “realistic” approach focused on reform of the private finance initiative.

But Geoffrey Spence, chief executive of UK Infrastructure, the Treasury unit charged with leading the government’s drive to attract institutional investment into infrastructure, said they had made “better progress than we thought at the time of the announcement [in autumn]”.

Speaking at an infrastructure conference in London last month, Spence said Treasury and the pension funds had achieved a “good measure of agreement” on setting up the new vehicle, which would be owned by the pension funds themselves.

He said: “It’ll be a not-for-profit entity, which will employ professionals who will be hired specifically for this to actually take forward, if you like, their investments, in different pools, because different participants will have different types of investment they want to make.

“The intention will be it’s an open platform that anyone can join - any UK pension fund can join - but obviously it will be kicked off by probably a hardcore of enthusiasts.”

“It’s actually moving quicker than we thought it would. We’re certainly not saying this is going to take years - this is not a typical PFI project procurement - so rest assured progress will be made quickly.”

Spence said Treasury was also spending “quite a lot of time” looking at ways to encourage investment in the early construction phase of schemes, which institutional investors traditionally regarded as too risky.

He said: “Because we’re seeing market failure, that’s due to the financial crash, we do think it’s legitimate for us to actually be proactive in finding solutions.

“We may be prepared to take more risk ourselves during the construction period to facilitate the way this works.”