Feature – Infrastructure


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 is focusing its infrastructure equity mandates on core operating assets globally, with some room for core-plus assets as well as some greenfield renewables 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, in the north of Europe and the UK in particular, which provide strong origina- tion 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 – as 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 inves- tor and we want to avail of opportunities from developed coun- tries around the world.”


Banking on infrastructure As part of this, possibly the most far-reaching development is the arrival of the National Infrastructure Bank, announced in November by the chancellor of the exchequer, Rishi Sunak. According to the National Infrastructure Strategy, the new bank has a big, far-reaching remit. It will “co-invest alongside private-sector investors including banks, institutional inves- tors, sovereign wealth funds, pension funds and global infra- structure 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 and secondly, I hope it can generate more supply of projects to provide more opportu- nities 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 it would like defined contribution (DC) schemes to invest in


52 | portfolio institutional | May 2021 | issue 103


Don’t just follow the herd and get dragged along by


the madness of crowds. Ted Frith, GLIL Infrastructure


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 DWP are consulting on performance fees within the charge cap while the government has set up a task force 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 commer- cial, which have effectively prevented them from allocating to infrastructure in the past.”


Pooling assets


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 the Brunel Pension Partnership. “You get the benefit from buying in scale: the capital scale, which drive down fees and other costs but also the benefit of being able to potentially bring things in-house,” Frith says. “And you can often get a better outcome for your pension fund by building a portfolio with the pension fund or funds in mind.”


And the range of portfolio initiatives are ever expanding. Infra- structure, which is to make up 5% of Nest’s portfolio by the end of the decade, has seen the auto enrollment pension scheme establish a new partnership with a private infrastructure inves- tor and GLIL Infrastructure to invest £3bn directly in global core and core-plus projects. The types of infrastructure Nest will be investing in include fibre networks, social housing, water and waste treatment plants and seaports.


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