UK government infrastructure fund finds first investor support

Wed Jul 25, 2012 6:16am EDT

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* Key investment vehicle close to securing founding fund members

* Big pension funds mull decision to join fund

By Raji Menon

LONDON, July 25 (Reuters) - Britain's first multi-billion pound infrastructure fund to be seeded by pension fund investors is on track to launch early next year, after receiving a strong response from funds keen to invest in government projects such as roads and power plants.

The Conservative-led ruling coalition plans to inject as much as 20 billion pounds of pension fund money into tired British infrastructure through vehicles like the Pension Infrastructure Platform (PIP), to support the ailing economy.

Joanne Segars, CEO of umbrella body the National Association of Pension Funds (NAPF), which backs the project, told Reuters PIP was on course for an early 2013 launch despite worries the vehicle would fail to attract the required number of investors.

"We are close to getting our pool of founding members. A good number of pension funds have signed up," Segars said, declining to confirm an exact number.

The fund is initially seeking to raise up to 2 billion pounds from 10-12 pension fund investors, with leverage taking the total investment to between 3 billion and 4 billion pounds.

Only the Strathclyde Pension Fund, has publicly signed up to the scheme so far, but others including the London Pension Fund Authority (LPFA), which has assets of around 4.2 billion pounds, and the 5 billion pound Merseyside Pension Fund, told Reuters they were considering participation.

The infrastructure fund will invest in brownfield projects -- assets that are already built and earning income -- or projects where the government will take on some of the construction risk with aim of achieving returns of 2-5 percent above inflation.

Segars said the government's announcement last week of offering guarantees on big infrastructure projects would give pension funds "more confidence" to invest. The LPFA said it wanted more detail on those guarantees and clarity on how many other pension funds were signing up before making a decision.

UK pension funds allocate only 2 percent of total assets to infrastructure investments, but LPFA Chief Executive Mike Taylor said interest in the sector is growing.

"The reason for that is the newer types of of infrastructure funds are not so much the private equity lookalikes that we had when we first started investing in infrastructure, but they are more geared to long-term, stable, inflation-linked cash flows which are a good match to our liabilities," he said.

The UK's second largest scheme, the 32 billion pound Universities Superannuation Scheme (USS), which already invests close to 1 billion pounds directly in infrastructure said it was interested in working alongside the PIP as a partner in deals.

Mike Powell, head of alternatives at USS, said: "In the UK, there are very few funds that we could team up with for transactions. If the PIP was successful, it would be an obvious partner for us to do deals in the UK."

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