The Pensions Infrastructure Platform has said plans to expand its offering by adding a renewables fund this year, as UK schemes continue to seek inflation-linked returns.
The Pip was established with the backing of the National Association of Pension Funds and was seeded by 10 founding investors, including BT Pension Scheme and the Pension Protection Fund. It had a target of raising £2bn to invest in core infrastructure assets, but as yet has raised just under £350m.
Mike Weston, chief executive officer at the Pip, explained the new fund will be managed in the same way as the infrastructure offering with a focus on low cost and risk providing modest returns.
“We’re working on a fund project in the renewables space. It will be a separate fund with the same kind of structure, with an external asset manager who would manage the assets,” he said. “The fund would be initially seeded by the founding investors of Pip… and then the asset manager will be able to go out and market it.”
Weston said it was applying for Financial Conduct Authority approval so it can operate as an asset manager.
“In terms of an asset manager having a fund, marketing it to pension schemes and making the investment, we become much more normal and therefore tick more of the advisers’ boxes,” he said.
Weston said more details on the renewables project would be released in February, and it would continue to work on its FCA application.
“We’re working to do that as quickly as we can; the FCA has a statutory six-month consideration period… it will be a matter of months, and we’re certainly targeting getting that done this year,” he said.
Project finance pot
Standard & Poor’s has put the funding need for infrastructure across the globe at $3tn (£2tn). But on Wednesday the Financial Times reported that European institutional investors, especially insurers, felt restrained from investing further in the asset class due to EU solvency rules coming in next year.
Toby Buscombe, global head of infrastructure at consultancy Mercer, said that while UK schemes might take comfort from the fact Europe’s Solvency II rules have not been extended to pension funds, some are still “looking over one shoulder” and the “continued debate is probably not helpful” for schemes considering infrastructure investments.
However, he added a more noteworthy point for UK and European investors is the “continuing evolution in energy policy”. He added: “Anything that gives rise to uncertainty in future energy policy and just the way those assets will be regulated is not helpful.
“If we look back, there’s obviously been a number of shifts in policy in the way rules have been applied to existing technologies over time and unfortunately those things do loom large in the minds of investors.”
Tim Huband, project and infrastructure finance manager at M&G Investments, said renewable energy investments’ predictable, long-term cash flows can be attractive to pension schemes.
He added: “For institutional investors, it is essential for deals to be structured with effective security – for example, we recently provided £60m to finance five solar farms in the UK, and these deals were structured in order to deliver inflation-linked returns to our pension fund clients.”
The UK government’s National Infrastructure Plan published in December 2014 outlined the need for around £100bn of investment up to 2020.
“Large-scale investment in gas and low-carbon electricity generation is vital in order to replace ageing energy infrastructure, maintain secure energy supplies and meet legally binding environmental targets,” the report said.
