Not all of the original PIP founding members were on board and earlier this year, three of the 10 – the London Pensions Fund Authority (LPFA), BT Pension Scheme (BTPS) and BAE Systems – which have more than £65bn in investible assets – pulled out to pursue their own infrastructure agenda. In a statement, LPFA said: “As the PIP moved towards awarding its first mandate, it became clear the pricing and risk/return profile targeted by the PIP, as well as other aspects of the PIP cost structure, differ from those now required by the LPFA.”
The LPFA did not elaborate on its concerns over pricing and risk/returns, nor is it known how much the LPFA has already contributed to the platform, but it initially committed to investing £100m upon joining PIP in February 2013. BAE Systems also cited displeasure with the platform’s risk/return profile, while the BT Pension Scheme said it wanted to continue with its own direct infrastructure investment programme. Founding investors for the first close of the equity fund which has raised £260m out of the targeted £500m include British Airways Pensions, Pension Protection Fund, Railways Pension Scheme, Strathclyde Pension Fund and West Midlands Pension Fund. Lloyds TSB and an anonymous fund are still on side, but they do not seem to be partaking in this initial round.
“As with any project, it is fair to say that within the PIP, it’s possible not all members have exactly the same objectives,” says David Cooper, executive director of IFM Investors. “I think that the overall desire is to develop a common reasonably priced platform for pension funds to access infrastructure. I don’t think the NAPF had any preconceived ideas, but equity, especially social infrastructure, is easier to understand than for example, an investment into renewable energy. There is also a greater visibility and more benchmarks in terms of fees and track-record for many managers on the equity versus the debt side.”
Overall, institutional investors with longterm liabilities have increasingly added infrastructure to their portfolio mix because of the inflation-protected cash flows and stable yields. Assets tend to have simple capital structures and are typically financed by between 65% and 90% of senior ranking debt, with the balance as equity and in some cases subordinated debt. However, debt funds are a relatively new phenomenon. Last year, European focused funds raised a record $9.1bn, which is more than three times the $2.6bn garnered in 2011, according to data provider Preqin.
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