So is the government backing of TTT a direct response because investors are voting with their feet?
Our message is that with something like Thames Tideway you can see what can be done when government are prepared to get involved and put in place the right mechanism to insure against, or offset, low probability but high impact risks. If they’re prepared to do that in construction projects it will attract pension scheme capital in, and governments are the best people to do this. You won’t get the commercial insurance market to do this stuff, it just wouldn’t stack up. The government has a serious role to play and if they recognise that and structure projects in the right kind of way, pension scheme capital will come in.
How close are you to the government?
Not that closely really because the government can’t be seen to favour one commercial enterprise over another. Clearly government wanted to get pension schemes involved in infrastructure, but when the pension schemes came together and said, “Okay, we like the idea of investing in infrastructure too. Treasury, what can you do to help make this happen?” The Treasury said, “Oh, actually, sorry, we can’t do much really.”
Do pension funds and other institutional investors have a role to play in society or am I being naive?
There’s a delicate balance because the number one responsibility of the pension scheme is to be able to pay the pensions that it’s accrued. If a pension scheme cannot pay the pensions then you’ve got a lot of members, citizens out there that aren’t going to enjoy the lifestyle that they thought they were going to enjoy. That’s the number one priority, but there are other responsibilities that pension schemes have, to be corporate citizens. You would be very short-sighted to say, “Yes, we can pay our pensions but only if we invest in stuff that generates loads of CO2. We’re alright for the next 15 years but after that we’ve contributed seriously to the degradation of the planet.”
Back in 2011 when the government first started talking about pension schemes backing infrastructure projects, it set out targets of £2bn in the first year and £20bn over 10 years. Were they realistic?
When PiP first started off, there were commitments from 10 big pension schemes who all committed over a £1m of investment to the platform. So you add that up, that’s £1bn. Then somebody said, “Well, you can leverage that, so it’s £2bn.” Quite where the £20bn came from, I don’t know, I think someone just stuck a nought on the end and it suddenly became £20bn. This was never anything that came out of PiP. We’ve helped raise £1bn now and our target for the multi-strategy fund is £1bn, so put those together, that’s £2bn. That gets us to the point where we said we’d be, or the thinking was in those early days of the project. The PiP multi-strategy fund needs to be at around about £1bn to have the scale to be able to invest in the right types of projects. To be able to do a 50-basis points fee level that the founding investors believe is the right kind of level to run these types of assets. You need certain scale to make the economics work and we’re confident that there are certainly enough projects out there to get to that level. Going forward, it’s difficult to predict but certainly as we sit here now there’s no problem with that. We would say we’re right on track for that. If you’re being negative, you say, “Well, yes, you’ve taken four years and you’ve only done £1bn.” We’d say, “Yes, but there has only been dedicated resource as PiP over the last year, and it’s only since August that the three of us have been working on it (Weston was joined by Wilson and chief operating officer Paula Burgess over the summer). Actually, in terms of achievement per year of resource it’s pretty damn good.
There were some high profile schemes who left PiP early. Was there any particular reason behind that?
Yes. I think the highest profile one was LPFA and you’ve seen LPFA tie up with Lancashire on an asset-liability partnership and with Greater Manchester on an infrastructure investment vehicle. Clearly they had a view about doing things one way. The great thing is we’re friends with everybody and we are still in conversation with LPFA. I think we will be more powerful combining with them on investment opportunities than we would probably have been had they just stayed in PiP as one of the founding investors. They have ambitious plans for direct ownership of assets, as do we, and together we both share the same ambitions. Working with them on specific deals is a great way forward and we’re talking to them and Lancashire and Greater Manchester on a number of things we hope will be able to progress.
Talking to them about specific projects?
Yes.
Which ones?
Oh, I can’t tell you that.
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