Interview – The Greater Manchester Pension Fund


schemes alongside other pension investment. The Thames Tideway super sewer is an example of a structure that facilitated pen- sion fund investment while it was financed by the private sector, creating an early yield for a construction project by putting a levy on the water rates in Lon- don that was able to pay a yield to equity investors while the project was being constructed.


This facilitated the pension fund invest- ment in greenfield infrastructure by cre- ating that early yield. The problem for many pension funds with new infrastruc- ture projects is the incoming cashflows are too far into the future, making them difficult for mature pension schemes to invest in. The North West Business Fund created a series of funds that were invested by pri- vate sector managers with public sector money. But again, the issue of why it was not as successful as they had hoped was the reluctance of private sector investors to go in alongside.


You are focused on local investments and are considered somewhat of a pioneer in this area since taking up your role in 2014. What do they bring to your portfolio? The Greater Manchester Pension Fund has been the pioneer and my team have built on that


history since 2014. The


attractions and benefits are the positive local impact, which includes the develop- ment of the built environment, the crea- tion of jobs, the promotion of social well- being and funding local infrastructure with a focus on climate change mitigation.


There is a real sense of pride for our pen- sioners and elected members in seeing the Greater Manchester Pension Fund logo as funder on construction sites around the area. We have always had twin aims on our local investments. At the portfolio level, they must deliver a return that is not det- rimental to the pension fund’s long-term


We have allocated 1% to affordable hous- ing, which equates to just under £300m. Overall, our property portfolio is worth in the region of £2bn, which is managed by several external managers and funds.


There has been a 40-year down- ward trend in gilt yields and a reversal could have significant market impact.


requirements. On a deal basis, they must represent a fair risk-reward pay off. At present this is being broadly achieved. The economy of Greater Manchester pro- vides some great investment opportunities.


Examples include a £800m expansion of Manchester Airport, several residential developments, the Soap Works, which is now the headquarters for TalkTalk, a FTSE 250 company. There are not many of those outside of London.


Tell me more about your property investments? We have a broadly diversified national portfolio in traditional property sectors. A key area of focus is affordable, with a small ‘a’, housing. We measure this by the rental values being 30% to 40% of key workers’ net salary in the public and pri- vate sectors. The UK has a much less developed insti- tutional presence in the residential sector than other developed economies, and that provides an investment opportunity. The sector offers a profile of returns suitable to funds such as ours in terms of an increasing income and residual asset base that grows over time.


14 | portfolio institutional | December-January 2022 | issue 109


Infrastructure is a big investment theme. What projects are you involved in? Greenfield projects have been challeng- ing. We are invested in renewable energy projects and are looking for more. Our direct infrastructure investments are made through GLIL [a local government pension scheme-backed infrastructure investor] and we aim to have 5% of the fund under its management eventually. In terms of fully operational projects, pricing is extremely competitive to the point that


it requirements.


Are there enough infrastructure projects to invest in?


There are not given investor demand for the cashflows infrastructure can deliver. It is difficult to create greenfield investment propositions with a suitable risk-return cashflow profile for pension funds, espe- cially for mature schemes.


The big headline trophy projects do not necessarily have a positive internal rate of return without incorporating some reflec- tion of the wider contribution to economic growth that they create. Having said that, there will be opportuni- ties for governments and private inves- tors to work together to create innovative financial projects.


structures to fund these


Private equity is another interest of the Greater Manchester Pension Fund. What’s the attraction? We


have seen excellent challenges the return


risk-adjusted


returns from our global private equity portfolio for many years.


My focus is on local investments. We have helped the formation of regional private equity and private debt funds as part of our impact portfolio.


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