Brunel Pension Partnership, the UK investment pool, has urged the government to put forward proposals for its preferred infrastructure procurement and financing models to unlock private market opportunities for Local Government Pension Schemes (LGPS).
The UK government has recently called for pension funds to invest more in private markets to boost the UK economy.
Richard Fanshawe, head of private markets at Brunel, said that in the past seven years Brunel has deployed £8bn (€9.6bn) into private markets, with 162 investments.
This means that around 33% of the partnership’s assets, including commitments, are now invested in private-market opportunities.
But there is “little more” capital available to deploy until capital is recycled or strategic allocation weights change.
Fanshawe highlighted that over this seven-year period there had not been as many exciting UK investment opportunities as “there could have been”.
He explained that in infrastructure, for example, the UK opportunity set shifted markedly away from private-finance initiatives and public-private partnership social infrastructure projects with “highly attractive availability payments”, towards energy, economic and utility-related assets with fundamentally different return profiles and drivers.
According to Equitix, the UK has a backlog of between £50bn and £300bn of capital maintenance in the public sector and social infrastructure facilities.
Fanshawe said that public sector bodies must balance their operational cash requirements with what they can afford to retain for capital maintenance in the future.
He added that resolving this might explain why there has been a “relative drought” in new UK project supply, while more attractive opportunities have been forthcoming in Europe and the US from private sources with fundamentally different business models to those in the UK.
Fanshawe suggested that by working with the Mayoral Combined Authorities, new projects could be brought forward that make sense from an investment perspective and allow pension pools to meet their fiduciary duties to stakeholders. This, he said, could encourage other investors to “come to the table”.
However, Fanshawe said the “ball” was currently in the UK government’s “court” to put forward its preferred infrastructure procurement and financing models, in advance of giving administering authorities the funding and advice to “convert ideas into market-facing opportunities”.
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