The UK’s public sector pensions should be competing for infrastructure assets alongside sovereign wealth funds and other major international investors, the deputy chairman of the London Pension Fund Authority (LPFA) has said.
Sir Merrick Cockell, former chair of the UK’s Local Government Association, made an impassioned plea for public funds to embrace active management and alternative assets, in a speech last week to other council pension fund staff.
He highlighted Canada’s public sector funds—including the Canada Pension Plan Investment Board and Ontario Teachers—as examples that the UK’s pensions should seek to emulate in terms of infrastructure and real estate investment.
“They are not just investing in projects, but making them happen,” he said. “This is something that UK funds should also have the opportunity to do.”
Sir Merrick claimed local government pensions had not been included in discussions between senior politicians and overseas investors regarding infrastructure assets.
One key reason, he said, was that UK pensions spoke with “multiple different voices”, meaning government officials and investment professionals were “in the dark” about the Local Government Pension Scheme as a group of potential investors.
“We have the collective size to be meaningful players and investors,” Sir Merrick said. “Our local knowledge and relationships make us the perfect partners for many UK infrastructure projects. In times of low interest rates, we must find assets to invest in that provide a return that will reduce and ultimately eliminate our deficits. To do this we must be able to play on a bigger stage.”
There have been some small steps into the real assets sector in recent months: the LPFA and Greater Manchester Pension Fund announced a £500 million joint venture to invest in infrastructure assets in January. The National Association of Pension Funds is hoping to open up the sector for smaller funds through its Pension Infrastructure Platform.
The Lancashire County Council Pension Fund is among several bidders to take on the UK government’s £400 million stake in Eurostar, which runs the train system between London and Paris. It is in competition with Caisse de dépôt et placement du Québec and the Universities Superannuation Scheme, among others, according to the Lancashire Evening Post.
“The fact that Lancashire is going toe-to-toe with larger international funds on UK assets should be the norm, not an oddity,” Sir Merrick said. “It should be celebrated as a step in the right direction—both for the infrastructure that it could finance and for the UK pensioners it provides a future for.”
He added that the LPFA was specifically interested in “transport, housing, commercial real estate, and regulated assets such as transmission or utility companies.”
Sir Merrick also used his speech to hit out at government proposals that would force pensions to use passive investment strategies to reduce costs.
“While forcing pension funds to adopt a passive investment management strategy may work for some, it would hinder others,” he said. “How could one hope to select quality assets by putting members’ money into a fund and then hoping for the best? With a trickling return less than inflation for that matter. The answer is that you cannot.”
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