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funds which are well matched to the long-standing nature of infrastructure investment. “We look for projects that essentially align well with pension fund liabilities – very long-term opportunities, 25-years plus,” Frith says, “and tailored to what the pension fund wants in terms of capital, deployment, risk and cashflow.” Nest focuses its infrastructure equity mandates on core operat- ing assets globally, with some room for core-plus assets as well as some greenfield renewable projects. “We have divided our infrastructure equity mandates into three: core/core plus global; European renewables; and UK core. We also allocate to global infrastructure debt,” O’Neill says. The opportunities highlighted by the National Infrastructure Strategy are already apparent to O’Neill. “We see some great deals in the UK in our managers’ pipelines, which provide strong origination opportunities in onshore wind and other renewables,” he says. “We also like that we will be allocating a meaningful amount of our portfolio to UK assets with a strong linkage to inflation in their return profile,” O’Neill says. “This helps support our long-term investment objectives, which are earning a spread over the UK Consumers Price Index. “With that said, we are a global investor and want opportuni- ties in developed countries around the world,” he adds.


Banking on infrastructure Possibly the most far-reaching development in this area is the arrival of the National Infrastructure Bank, which was announced towards the end of 2020 by the chancellor of the exchequer, Rishi Sunak. According to the National Infrastruc- ture Strategy, the new bank has a big, far-reaching remit. It will “co-invest alongside private-sector investors including banks, institutional investors, sovereign wealth funds, pension funds and global infrastructure investors”. It will also use “a range of tools to support private projects: as well as offering guarantees through the existing UK Guaran- tees Scheme, it will offer debt, equity and hybrid products.” Commenting on this, Frith says: “What I hope is that the National Infrastructure Bank does two things: one is that it can play a co-ordinating and strategic role. Secondly, I hope it can generate more supply of projects to provide more opportuni- ties for investors. I am encouraged by what I have heard. The proof will be what happens in the next couple of years.” But while a supporter of the National Infrastructure Bank, Sil- ver is sceptical about its funding. “Its balance sheet is £22bn compared to £2.2trn [market size], which isn’t going to make much of a difference,” he says.


In another measure, the government announced in the Budget that it would like defined contribution (DC) schemes to invest


24 Dec-Jan 2022 portfolio institutional roundtable: Build Back Better


in more alternative assets – widely seen as a hint that they should be free to invest in infrastructure. “There is a lot going on at the moment to make this work,” O’Neill says. “The Department for Work and Pensions are consulting on performance fees within the charge cap while the government has set up a taskforce to look at how a ‘long-term asset fund’ can be created to meet these ends. “We believe this is an important push to help DC schemes overcome the hurdles, operational and commercial, which have effectively prevented them from allocating to infrastruc- ture in the past,” he adds.


Come together


Although investing in infrastructure can come with a big price ticket, which can put the asset class beyond the reach of many funds, there are examples of schemes coming together to pool their assets. In November, a group of local government pen- sion schemes announced they would be pooling £840m to invest in infrastructure projects through Brunel Pension Partnership. “You get the benefit from buying in scale, which drives down fees and other costs as well as potentially bringing things in-house,” Frith says.


And the range of portfolio initiatives are ever expanding. Infrastructure, which is to make up 5% of Nest’s portfolio by the end of the decade, has seen the auto-enrolment pension


It’s clear that when chosen and managed carefully, unlisted infrastructure equity assets can offer stable, long-term returns even in difficult market


conditions. Stephen O’Neill, Nest


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