UK government offers European pensions cheaper access to infrastructure exposure

Europe’s largest institutional allocators could benefit from lower, capped fees on their infrastructure investments if the UK government opens its planned Pension Infrastructure Platform, intended mainly for UK pensions, to a broader audience.

The UK Government has not ruled out allowing non-UK investors to take part into a government-backed pooled UK infrastructure vehicle, owned and run by UK pension funds.

It will have a 0.5% cap, the Treasury infrastructure policy chief said.

The move could be a blow to fund management houses, who often offer infrastructure funds with management charges above this level.

Spence said: “One of the relationships that seems to have gone downhill as result of the credit crisis has been the relationship between pension funds and traditional fund managers in the UK, particularly in the infrastructure space and some types of infrastructure funds in particular, particularly the private equity model.”

The UK Treasury will announce plans for the platform next month – a centrepiece of Chancellor George Osborne’s National Infrastructure Plan aimed at unlocking £20bn of scheme assets.

These would bypass traditional fund managers, and allow schemes to club together and buy infrastructure directly.

Under the plans, pension schemes involved will recruit external professionals to run the PIP – with the platform open to other types of investors and charges capped at 50bps, Infrastructure UK chief executive Geoffrey Spence said.
The charge mirrors levels used by the National Employment Savings Trust, the forthcoming government backed defined contribution scheme.

Speaking to Investment Europe’s sister publication Professional Pensions, the policy chief said: “The intention is this will be an open platform that anyone can join. Obviously any UK pension fund can join, but it will be kicked off by a hard core of enthusiasts. The aim is that that’s the sort of platform that wouldn’t charge any more than 50 basis points for its services.”

Spence heads up Infrastructure UK, a unit within HM Treasury responsible for boosting infrastructure investment.

He added: “We’ve moved quicker than we thought we would. The embryonic platform is going be here quite soon.

“The platform would consist of quite a number of different funds. Pension funds themselves would pay for the management directly, in the sense that they would own their own fund manager, and that would work closely with government to facilitate the financing of infrastructure projects going forward in the UK.”

UK Chancellor of the Exchequer George Osborne announced detailed plans for a National Infrastructure Plan last year, to generate £250bn of investment in UK infrastructure over the next five years and £400bn over the next 10 years.

He said: “Pension funds need these assets. They realise if they don’t mobilise collectively they will face the prospect of the assets available to them to hedge their inflation exposure will just actually go elsewhere and be owned, as they are at the moment, by the Canadian pension funds and other types of investors. So they see themselves as a bit under threat.”

Michael Bow works on Investment Europe’s sister publication Professional Pensions.

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