Chancellor reveals plan to boost infrastructure with LGPS platform
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A new national infrastructure platform for Local Government Pension Scheme funds will be created, chancellor George Osborne has announced.
This week’s Budget signalled the Treasury’s intention to create a new vehicle to sit alongside multi-asset pools – which Osborne refers to as “British Wealth Funds” – proposals for which were submitted to ministers last month.
The new platform is aimed at increasing the LGPS money invested in infrastructure schemes and save money on administration fees for funds.
Documents published alongside the Budget said: “The government has received ambitious proposals from Local Government Pension Scheme administering authorities to establish a small number of British Wealth Funds across the country by combining their assets into much larger investment pools.
“These pools will deliver annual savings of at least £200-300m, and we will work with administering authorities to establish a new Local Government Pension Scheme infrastructure investment platform, in line with their proposals, to boost infrastructure investment.”
A national platform for infrastructure was proposed in the Project POOL report submitted to government by 25 local authorities, assisted by pension adviser Hymans Robertson.
The report said: “Improved access and lower cost is most likely to be achieved through a national platform accessible to all of the Multi-asset Pools (MAPs).”
Barry McKay, partner at Hymans Robertson, said: “This announcement moves things on and things are beginning to take shape.
“A national infrastructure platform is the most suitable option because of the significant size of relevant projects – they can be hundreds of millions of pounds each.”
McKay said a national infrastructure platform could offer pools the chance to invest in different tiers of risk and return depending on appetite.
But he warned that the government needs to make sure that there is a sufficient pipeline of infrastructure projects to deliver the returns that LGPS funds are looking for.
He said: “They would most likely need to be inflation linked to meet long-term pension liabilities.”
At the moment, LGPS funds only have 1.5% of their total assets invested in infrastructure, and McKay said that over time that could rise to 5%.
“That is the level of commitment by similarly large international pension funds, but it will take a while for the new platform to get there. Funds aren’t going to sell of their existing investments in order to join straight away,” he said.
Greater Manchester Pension fund and the London Pensions Fund Authority have already created a £500m joint infrastructure fund, which McKay suggested could form the basis of a national platform.
William Bourne, director of investment adviser City Noble, said: “I do think that if you want LGPS investment in infrastructure you have to have it scalable so you have to have a platform.
“I think the government are realistic that this isn’t going to lead to significant immediate investment in infrastructure, however.”
