UK - The UK Treasury will target pension funds as a primary source of funding for billions of pounds in infrastructure projects, using a national bank which will bypass traditional fund management companies.

As part of a bid to raise an estimated £500bn (€548bn) in infrastructure investment over the next decade, the business secretary Peter Mandelson said traditional methods for investing in infrastructure were costly, time consuming and risky, and government needed to take a central role in providing the institutions necessary to support private investment.

Lord Mandelson said: "We need to mobilise private investors on a totally new scale. That has to include examining the case for public-sector backed financial institutions to achieve this mobilisation."

A more detailed outline of a national infrastructure bank is expected in next week's Budget.

The need for easier access to this type of investment was highlighted by David Brief, chief executive of the £11bn BAE Systems pension fund, who said infrastructure funds that met the long-term nature of pension funds were severely limited in the UK.

"We wanted long-dated funds, preferably more than 15 years, with inflation protection, run by experienced fund managers that didn't charge private equity-style fees and proffered high single or low double digit returns," Brief said.

Yet, Brief noted that most fund managers offered quite the reverse proposing high double-digit returns with private equity fee levels, short time horizons and limited experience.

"There were only two fund managers that offered any kind of track record," he added.

At present, infrastructure accounts for just 0.7% of the UK's total pension fund asset allocation presenting an extremely attractive proposition for the UK government, which is struggling to fund future expenditure thanks to a huge public debt.

"The reality is that the bulk of new investment will have to come from the private investors. In Britain and around the world, savers looking to the long term of their retirement are a huge pool of capital well suited to these kinds of long-term investments," Mandelson said.

Last week the Pension Protection Fund (PPF) announced its intention to allocate 20% of total assets to alternative investments including infrastructure; a move which is indicative of a potential trend across the UK. (See earlier IPE article: PPF to diversify investment strategy from equities to alternatives) 

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