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Local U.K. Government Pensions Crank Up Infrastructure Investments

A £1.5 billion investment announced Wednesday is the latest in a series of infrastructure announcements from U.K. local government retirement schemes that have five million members nationally.

Two major U.K. local authority pension schemes, Lancashire County Pension Fund and the London Pensions Fund Authority, have pooled their assets to invest collectively in global infrastructure projects, the latest in a series of joint investment projects in which many of the U.K.’s 89 local government pension schemes have combined assets to increase buying power for investments.

The newest of these collaborations is being done through the £10.6 billion ($13.7 billion) Local Pensions Partnership, the organization established between the Lancashire and London funds in 2015. Today’s fund has been launched with committed capital of £688 million, with a view to increasing this to £1.5 billion with interest from other investors by the time the fund closes in September this year. It will invest in infrastructure projects both directly and through specialist infrastructure funds.

The 89 local pension schemes known collectively as the Local Government Pension Scheme manage the retirement savings for more than five million people in the U.K.

The partnership announced between London and Lancashire on Wednesday echoes the 2015 deal between the Greater Manchester Pension Fund and the London Pension Fund Authority, in which the two entities launched GMPF and LPFA Infrastructure LLP, known as GLIL, a dedicated infrastructure investment fund. At the end of last year, pension funds from the Lancashire, Merseyside, and West Yorkshire authorities joined the scheme and collectively pooled £1.3 billion.

This latest fund will have assets managed by Local Pensions Partnership Investments, an alternative investment manager authorised by the U.K.’s Financial Conduct Authority.

“In pooling the infrastructure allocations of our shareholder pension schemes, the fund will also be an attractive vehicle for other investors looking to build their exposure to cost-efficient, diversified infrastructure assets,” said Susan Martin, chief executive of the Local Pensions Partnership, in a statement accompanying today’s announcement.

It comes after a research report, released last month by trade publication Local Government Chronicle and sponsored by asset manager Aviva Investors, that noted that U.K. local government pension schemes are planning changes in how they allocate infrastructure assets in the months ahead. Respondents to the survey announced that investments in infrastructure debt were becoming more important to these funds. In total, 43 percent of LGPS funds responding to the poll said they planned to invest in infrastructure debt in the future, while 35 percent had plans to invest in unlevered infrastructure.

In an interview with Institutional Investor, Anish Butani, infrastructure specialist at investment consultants bFinance, said his firm has noticed sustained interest in capital allocations to infrastructure in recent weeks.

“In the past three months, we have been very busy with local authorities in helping them to select fund managers to allocated capital to, specifically within infrastructure,” he says.

Butani adds that interest in infrastructure debt is growing, as the asset class is appealing to those seeking to match liabilities.

The LGC/Aviva report also found that pension funds would increasingly look at investing in infrastructure assets through a segregated mandate in the future.

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