Pensions Insurance Corporation – Industry view


James Agar is head of long income at Pension Insurance Corporation (PIC)


URBAN REGENERATION AND INFRASTRUCTURE CAN SECURE PENSIONS FOR DECADES TO COME


An overhaul of UK infrastructure is long overdue. Whether it is a greater supply of better housing or renewable energy to support the transition to net zero, the UK’s infrastructure ‘wish list’ is long and, under traditional financing parameters, prohibitively expensive.


In many cases, development costs are greater than the value of the completed product. This dynamic restricts invest- ment in areas that desperately need it because they are economically unviable. However, long-term institutional inves- tors are investing in these areas, driving economic growth and creating jobs, using long-term regeneration leases in partner- ship with local or combined authorities. These instruments can unlock invest- ment in forgotten areas of the UK and kickstart regeneration to transform local communities. Under a regeneration lease, the local authority enters into a long-term (typically 40 to 50 years), index- linked lease, and has the option to buy the asset for £1 at the expiry of the lease.


This structure plays an important role in delivering PIC’s purpose: to pay the pen- sions of our current and future policy- holders. Our investment strategy is care- fully constructed to deliver robust, index-linked cashflows that match all future pensions payments, so we can be sure our policyholders receive their pen- sions every single year.


These instruments are certainly not a one-sided affair; regeneration leases are mutually beneficial to all parties involved. Local authorities, and potentially other investment-grade organisations such as universities and NHS Foundation Trusts, gain access to significant levels of capital to deliver their strategic objectives and to stimulate local economies, whilst also achieving a profit rent which grows over the period of the lease.


Due to set maturities and pricing in pub- lic credit markets, sourcing private assets, such as regeneration leases, has become a key part of PIC’s investment strategy to obtain the necessary liability-matching cashflows. The best way to find defensive investments with long time horizons is to invest in assets with social impact. This includes renewable energy, social hous- ing, urban regeneration and education. PIC has around £11bn invested in these sectors, which generate huge social value for society – good for our policyholders and the communities around the UK which benefit from new development. Investments through regeneration leases often act as a catalyst for wider regenera- tion and breathe new life into communi- ties by unlocking long-term investment. The Wirral Waters project is an example of this, where alongside Peel L&P and


Wirral Metropolitan Borough Council, we are developing more than 500 homes, with a 20% affordable element, in an area of limited viability. Our cornerstone investment of £130m is the first of a 30-year project to transform an area of former dockland into a thriving neigh- bourhood, with additional housing, 20,000 permanent jobs, and new train- ing and educational facilities. A similar project is underway in Newham following PIC’s investment through a regeneration lease. It will fund the con- struction of 161 homes on an industrial site near London City Airport to re-home local families. Up to 50% of the properties are intended to be affordable housing, generating considerable social value. Regeneration leases are not the only inno- vative private asset structure used by PIC to match the liabilities of our policyhold- ers. In August 2021, we concluded a unique investment with the London Bor- ough of Bromley to help alleviate local emergency homelessness. The £67m investment is being used to purchase up to 300 affordable properties outright. This will reduce the council’s


cost of


emergency nightly accommodation, by eliminating reliance on hotel rooms, for families in need of temporary accommo- dation across the borough.


PIC views these instruments as a vital tool for infrastructure investment, providing an opportunity for genuine public and private sector partnerships to bridge the viability gap. These are examples of the financially secure but creative invest- ments in long-term, private assets that safeguard the pensions of our policyhold- ers for the decades to come.


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ISSN: 2045-3833 Issue 116 | September 2022 | portfolio institutional | 11


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