UK’s PPF to invest £1bn in infrastructure

The UK’s Pension Protection Fund (PPF) is to plough an additional £1bn into “high quality” infrastructure in the UK and globally, according to chief investment officer Barry Kenneth. The allocation amounts to approximately 3.5% of total assets and will involve a shift away from listed equities.

The fund also plans to allocate to mid-market private credit.

Kenneth said the PPF is currently “working on a number” of UK-focused infrastructure opportunities, but emphasised that it would consider opportunities on a global basis, in areas including energy transition.

“We see a lot of opportunities in [the infrastructure] space just now […] not just in the UK, but globally, which require significant capital,” Kenneth said in IPE’s Leaders in Investment podcast.

“Our job here is to make sure that we get the best risk-adjusted returns that are available in this asset class, [to] make sure we access it properly.

“The fiduciary duty of myself and my team is to try to lower risk to members to generate these returns.

“And as much as we are very open to investing in UK and UK infrastructure, our mandate really is to try [to] de-risk our members’ outcomes as much as we possibly can.”

CBRE’s latest Infrastructure Quarterly sees long-term (10-year) returns for private infrastructure on a par with those for listed equity. Kenneth said he currently sees “good, Sharpe ratios and good quality investments with the right level of return and risk associated with them”.

The PPF has already invested some £1.4bn in infrastructure, according to its most recent annual report. In 2015 it became part of a consortium to invest in the construction of the Thames Tideway Tunnel, also known as London ‘super sewer’.

In 2020 the PPF invested in Cross London Trains (XLT), a company established to procure and lease rolling stock for the London Thameslink rail franchise.

“Some of the listed markets, certainly from a valuation perspective, look as though they’re very close to being fully valued,” Kenneth said at the beginning of April, before US president Trump unleashed unprecedented disruption on global markets.

The PPF has also increased its private credit portfolio, and sees potential to increase its allocation.

Kenneth said: “As much as public credit spreads have tightened materially and over the past couple of years, I still think there’s opportunity sets in private credit in the right pockets, especially in the mid-market space, both in Europe and the States. And so we’ve increased our allocation there.”

The CIO also expressed doubts about duration: “I’m not quite sure that the market truly price yet the level of term premium that should be in long-term rates,” he said.

Kenneth also commented on an Economic Footprint Report, which the PPF released in January, and which analyses the fund’s equity and debt investments in relation to its £15bn investments in the UK. It uses standard UK Office for National Statistics (ONS) multipliers to calculate the scheme’s overall economic impact.

“What it does absolutely show is that the equity investment aspect of this is the real driver of growth, rather than the credit aspect,”  Kenneth said. “We’ve got far more invested in credit than we do in equity, but it’s actually the output of the equity that I think is the key economic driver here.”

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