The Pensions Infrastructure Platform (PIP) is for funds collaborating so why have you not signed up?
Infrastructure is a good investment for pension funds as it gives long-dated inflation- linked cashflows with some returnseeking upside. For most people there is no need to go into more esoteric areas such as aircraft leasing or heavily-geared propositions, so something that delivers a steady 8-10% return in regulated industries should be a good thing. The problem is a lot is brought to market by auction and for a UK pension fund there is always the likelihood a Canadian pension fund, an Asian investor or an endowment fund can outbid you by 15-20%. The danger is you spend an awful lot of money in a bidding process and have nothing to show at the end of it. PIP seemed to spend an inordinate amount of time discussing what it was going to be and how it was going to operate. In the time they had spent talking we were looking at direct deals and ended up doing a joint venture with Hermes where we effectively acquired assets at a prior year price, put cash in their fund and we now have a third party vehicle. So we have deployed the £100m ticket we would have spent while everyone else has been talking about it.
Indeed, you recently backed Hermes’ acquisition of 40% of Eurostar from the UK government.
We’re an investor in the fund but have also supported the bid via our segregated account programme such that we are now holding just over 4% of the company. It’s a good deal – what the coverage doesn’t pick up is it comes with a brand new set of rolling stock about to be delivered, (bigger, lower maintenance requirements, Wi-Fienabled etc.) and a franchise that extends through France to the ski resorts and south coast. Coupled with redevelopment of King’s Cross, we can only see demand increasing.
What about the general case for infrastructure?
The first lesson we learned from our first forays into infrastructure was to do deals off-market and know we had deal certainty at the end of it. The second is a pricing issue, because with so much money hitting the sector you have to be a bit more agnostic about investing in infrastructure equity or debt because debt might give a better return and also whether it has to be UK- focused; we committed £100m just before Christmas to investment in Africa. The third thing is we need to see operational expertise and like distressed assets that need genuine active management to release
value. For example, since we took over Manchester Arena we have restructured the offices, we are in the process of putting an electric go-kart track underneath and we have changed the advertising hoardings to create a small Piccadilly Circus-style space; and we are in discussions with the local authority about putting in more car-parking and a hotel. We don’t just take something
and clip the rental.
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