Lancashire fund looks to future deals after Eurostar setback

Lancashire County Pension Fund is undeterred from bidding for future flagship government privatisations, despite losing out this week in its attempt to buy the government’s stake in Eurostar.

The council was beaten to the punch by Canadian regional pension fund Caisse de dépôt et placement du Québec (CDPQ) and Hermes Infrastructure, which together agreed to acquire the government’s 40% stake in Eurostar for £585.1m.

Lancashire made it to the final shortlist of bidders, but is understood to have lost out because its bid was slightly lower than the winning consortium.

Mike Jensen, chief investment at LCPF, told Room151: “We have got to be pretty pleased. We got to the final table and were not outbid by much. The process has also given us a lot of profile.”

Jensen said that the fund would now be looking at the Treasury’s pipeline of proposed privatisations, including Ordinance Survey and the Met Office.

“We will seek to work with them and if there are any opportunities that could offer the same high quality return that Eurostar would have done, then we will look at those.”

Jensen would not reveal how much the fund had bid for the Eurostar share, how much the process cost or its expected return on investment.

However, he said that the fund had produced a range of calculations, and that even the most conservative scenario would have seen a return that comfortably beat its minimum requirement of 8% a year for infrastructure investments.

On the cost of bidding, he said: “In comparison to the bid, and to the fees we would pay to other fund managers, it was very small indeed.”

Jensen said that council pension funds could be at a competitive disadvantage to large private funds because they have more resources and more sophisticated governance structures to cope with the upfront bidding and due diligence processes.

He also said that certain bidders, such as sovereign wealth funds can sometimes accept a lower rate of return because they need to get money out of the door.

However, the LCPF’s recently announced deal to collaborate with the London Pension Fund Authority would make it easier to bid for flagship investments similar to Eurostar.

David Borrow, deputy leader of Lancashire County Council, and holder of the finance portfolio, said the Eurostar project was testament to the fund’s creation of an expert finance team.

He said: “We have for a long time had the scale of investments required to be in this kind of process, but only over recent years have we developed the expertise to know whether and how to go about it.

“Our strategy on investments is first and foremost to ensure the security of our assets which, as events such as Lehman Brothers and the Icelandic banking crash proved in the last decade, doesn’t mean simply putting money in the bank.

“We will continue to seek out the most secure investment opportunities we can find for the benefit of our local communities and members of the pension scheme.”

Photo (cropped): David Jones, Flickr