Q&A: Mike Weston on the Pensions Infrastructure Platform and LGPS

The Pensions Infrastructure Platform (PIP) launched its second fund last week with at least one local authority on board. The Solar fund kicked off with £131m. Chief executive Mike Weston, who joined the Pensions Infrastructure Platform from his previous role as the Daily Mail’s chief investment officer, talks to Room151 about a proposed investment in the new Thames Sewer, a proposed £1bn multi-investment fund, and opportunities for local government schemes to get involved.

A not for profit owned by the NAPF, the platform was created to encourage infrastructure investment opportunities following discussion with HM Treasury and the Pension Protection Fund.

Q: Things with PIP went quiet for a while – what’s been happening?
As you are aware, we launched our first fund – the PPP equity fund which achieved first close in February last year. The fund , which is managed by Dalmore Capital, has a hard cap of £600m and will likely close in the autumn. We are on £510m at the moment. One of the investors that has come on board is Greater Manchester Pension Fund.

Launching that fund demonstrated it was possible to put PIP intoreality and engage with an established player in the market. That was a major stepping stone. After that, everyone took a big breath and thought what happens next? The first decision by the founder members was that they hadn’t had enough and wanted to go forward. That led to my recruitment along with an investment director and chief operating officer.

Q: And you launched your second fund recently?
Yes, the solar PV fund reached first close last week with £131m commitments from four of the founder PIP members. Strathclyde invested, but West Midlands didn’t because they already have significant solar investments and didn’t want to be overexposed. It will have a hard cap of £250m.

Q: What is the main challenge you have faced since joining?
Some of it has been dispelling some myths. It took a while to get PIP going because there was a perception among some funds – particularly in local government – that it was a secret arm of government and the treasury to pursue a central agenda. Nobody wanted to talk to us. We are not an arm of government.

Q: How does PIP work? What are the risk and return profiles?
We have 10 founding investors and between us we identify interesting opportunities. The advantage is that a manager can get to first close by talking to these investors and a limited marketing effort. After that, the manager can invest and market the opportunity to other pension funds.

Q:What other investment opportunities are you looking at?
We are awaiting a decision on the preferred bidder to build the Thames Tideway super sewer. We are involved with one of the bidding consortia through Dalmore – PIP has said it will contribute around £380m to the £1.25bn funding costs if the consortium wins. An announcement is due around the time of the Budget.

Q: What else are you working on?
A longer term aim is to transform PIP into an authorised asset manager in its own right so we don’t have to find commercial asset managers to invest for us. We know that individual funds need an intermediate body and the objective is that PIP is able to fulfil that role. The idea is that there would be mutual ownership along the John Lewis model. Our application to the Financial Conduct Authority has been submitted.

Q: What would that enable you to do?
Once we are authorised then we would aim to launch a multi strategy fund. We would be aiming to get a fund of around £1b with 15 to 20 individual investments. If we get a decent number of investments we can be a meaningful player in the marketplace. Scale is an advantage in infrastructure investment.

Q: Would you be seeking more investors?
We are open to take on more founding investors and for investors looking to get involved in individual funds. The founding investors are effectively providing development funding for the PIP. They have the ability to coinvest alongside funds and are able to opt out of particular investments. They tend to be bigger schemes.

Q: Do you think you have overcome some of the worries about the construction risk that was associated with infrastructure development?
In the case of the Tideway Tunnel project, there is a significant element of construction – it is the biggest building project after Crossrail and before HS2. But the construction risk has been mitigaged by the way the contract allocates cost overruns between various parties. It also has a government guarantee scheme in place. This makes it a low risk project. It shows that there can be construction risk but if mitigated in a sensible way then they are still attractive. It is all about an appropriate return for an appropriate level of risk. We would never go into speculative greenfield infrastructure projects.

Q: Is there any difference between the risk and return appetites of your private and public founding members of PIP?
There shouldn’t be any difference in reality. We are attempting to provide a particular type of investment and asset class to a portfolio. The only difference really is that most defined benefit schemes are closed to new entrants and are going through a derisking process – aiming for a higher allocation to low risk assets. Public sector funds are still open and have a positive cash flow but even they are looking to reduce risk and volatility.

Q: What can local authority pension schemes bring as founding members?
There are lots of debates about local investment – local authorities have good ideas about their localities and we can partner with them to do local investment. The local authority’s backing gives a real validation that the schemes are not just vanity projects. And if they are owned by a council then they are not the sort of scheme that is likely to be auctioned off by advisers in the city.

Q: London Pension Fund Authority was a founding member but pulled out of PIP? What happened?
Essentially, it just decided to work with Lancashire County Pension Fund. We are still friends, though. LPFA and Manchester could come up with a project and we could get involved.  We would only be too pleased to look at stuff. And if we find a scheme that is too big for PIP we would talk to LPFA and Lancashire. There is also the emerging London CIV – these emerging groupings are good for the sector as a whole.