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£4bn pension fund 'put off' from infrastructure platform by PFI uncertainty

A £4 billion local authority pension fund was ‘put off’ from joining the government-backed pension infrastructure platform by the PFI review, its chief executive has told CN.

Mike Taylor, of the London Pension Fund Authority, also said that Department for Communities and Local Government rules capping how much local authority pensions can invest in infrastructure are contradicting the Treasury’s policy to boost pension fund investment in UK infrastructure.

The National Association of Pension Funds and Pension Protection Fund are planning to launch a £2bn pension infrastructure platform that will pool funds and facilitate investment from January next year, albeit starting in low risk infrastructure.

It comes after George Osborne announced last November that he was targeting £20bn from British pension funds after signing a ‘memorandum of understanding’ with the NAPF and PPF, and a separate agreement with a group of funds including the LPFA, Hermes, Merdiam and the Greater Manchester Pension Fund.

The PFI call for evidence was announced a month later.

Mr Taylor said his members are likely to make a decision on whether the LPFA joins the platform later this year, but that it remains “just a bit unsure about the potential governance” of one built by the NAPF and not an independent fund manager.

He added: “We were also put off slightly by government indicating that they were going to change or reintroduce PFI – we wanted to see what the impact of that was before we joined the PIP.

“We have not stalled anything (but) we were hoping for something a bit more specific – it’s fairly vague.”

Mr Taylor said PFI schemes had represented a ‘good deal’ for early investors, but he is ‘less convinced’ it had done so for the public sector. The LPFA invests in PFI projects including schools and hospitals, economic infrastructure such as roads and airports, as well as a large amount of investment in ‘clean energy’.

He added: “It is not anything that will necessarily lead us to change our views…we are keen on infrastructure as an asset class.”

Joanne Segars, of the NAPF, did not comment specifically on the impact of the PFI review on the PIP.

But she added: “We are still awaiting the Treasury’s response to the PFI consultation, which will be important for pension funds and other investors.”

A Treasury spokesman would only refer CN to comments by Geoffrey Spence about the PFI review and pension fund investment last week. Mr Spence said at that time that the review had not delayed any business, and that questions on the PIP should be directed to the NAPF.

Mr Taylor also said pension investment in infrastructure is restricted by a DCLG rule that caps a local pension fund’s commitment to limited partnerships - which is how the funds invest in infrastructure - to 15 per cent of its assets. It means funds already investing elsewhere might only be able to invest a limited amount in infrastructure.

Mr Taylor said the industry has been calling for changes ‘for some years’, with the NAPF also backing the campaign.

“We are starting a mini-campaign to get the changes because they are severely impacting on another area of policy (which is pension funds investing in infrastructure)

“It’s one hand of the government not knowing what the other hand is doing.”

Ms Segars said they share concerns about the investment regulations, and ‘very much want to see the restrictions on what local authority funds can invest in removed’.

A spokesman for DCLG said “any potential risks have to be carefully managed to ensure pensions can continue to be paid and to avoid any liability to council tax payers.”

Last week pension funds urged the Treasury to provide more detail on the UK Guarantees scheme it said could help unlock £40bn worth of projects in the National Infrastructure Pipeline.

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