UK May Turn to Pensions for Infrastructure Help

(November 26, 2011) — The UK Exchequer is said to approve a deal with pension funds and infrastructure investors to finance projects with the aim of reviving the economy. 

The investment, according to Bloomberg News, is part of a £10 billion boost for infrastructure that Chancellor of the Exchequer George Osborne will likely expand upon this week. 

According to Bloomberg, Hermes GPE LLP, Meridiam Infrastructure, the Greater Manchester Pension Fund, the London Pensions Fund Authority, and other funds — managing a total of $77 billion — signed a memorandum of understanding, noting that over the coming weeks, the group will work at attracting additional corporate pensions to invest. The agreement will urge pensions to allocate money to fund an array of construction projects, while also providing cash to existing projects. Next week, the government is set to release a list of top infrastructure project priorities, the Financial Times initially reported.

The commitment to infrastructure among pensions is not unique to the UK. The popularity of infrastructure among institutional investors was described in an August study by Keefe, Bruyette & Woods, which found that the hype over alternatives among institutional investors in the US is not expected to subside. The study by KBW followed a poll in early August by SEI — completed by 106 pension executives overseeing assets ranging in size from $25 million to over $1 billion — that revealed that an increasing number of pension funds are using alternatives as funded status volatility continues to be a primary concern.

In September, following President Barack Obama’s national infrastructure push detailed in his speech before Congress, the largest public pension fund in the US expressed its commitment to the asset class. The $225.4 billion California Public Employees’ Retirement System (CalPERS) Board of Administration has earmarked up to $800 million for investments in California infrastructure over the next three years. The scheme’s plan called for investments in both public and private infrastructure, including transportation, energy, natural resources, utilities, water, communications, and other social support services. “We remain committed to California’s future and the investment opportunities that run deep between our coastline, mountains and valleys,” said Rob Feckner, President of the CalPERS Board of Administration, in a statement. “We are prepared to increase our investments in infrastructure with our first and foremost goal being on investment returns, and a secondary goal of supporting essential community services that are crucial to continued economic development, a safe environment, and healthy schools and communities.”  

The UK’s reliance on pensions and infrastructure investors jibe with a recent article in the Wall Street Journal about a consortium of pension funds—the major state and city systems, along with teacher and private-sector funds—to inject $1 billion to $2 billion to supply Albany with financing for public works. “Such an infusion would draw New York’s retirement funds into uncharted investment territory, pension experts and labor leaders said,” according to the article, raising the question of whether pensions should help local economies.