Avon Pension Fund and Dorset County Pension Funds have awarded infrastructure mandates of £187m (€234m) and £40m, respectively, to IFM Investors, after breaking new ground by sharing their procurement costs three ways.
It was the first time either UK local authority pension fund invested in infrastructure, and showed that the asset class is becoming more appealing to schemes as they look for sources of uncorrelated returns to match liabilities, IFM Investors said.
Matt Betts, assistant investments manager at Avon Pension Fund, said: “We wanted to diversify our assets, and looked to infrastructure due to its inflation-linked, cash-generating and liability-matching qualities.”
IFM Investors’ portfolio and open-ended investment structure – which allows allocations to be made for the long term – were very attractive to the pension fund, he said.
“We decided to make a new allocation to infrastructure following a review of our investment strategy in 2013,” Betts said.
IFM Investors – which is owned by 30 non-profit pension funds – said the Avon Pension Fund allocation to infrastructure was particularly big and far surpassed the average amount being invested by UK local authorities in the asset class to date.
The pension funds were advised by JLT Employee Benefits, which brought three local authority pension fund clients – Avon, Dorset and the City and County of Swansea Pension Fund – together in a joint procurement process in order to save costs.
John Finch, head of LGPS (Local Government Pension Scheme) at JLT Employee Benefits, said this collaborative search process had enabled the three funds involved to make significant savings, but still allowed them to make independent decisions on their choice of manager.
All three pension funds had been looking to appoint managers for infrastructure, he told IPE.
Finch said that, to his knowledge, this was the first time such a collaborative search process had been done.
“We did one search for the three of them and split the cost between the three of them,” he said.
“It meets what the government had been requiring local government pension schemes to do, in collaborating to save costs.”
The Dorset County Pension Fund is believed to have appointed Hermes as a second infrastructure manager, though neither party was immediately available to confirm this.
The City and County of Swansea Pension Fund was also unavailable to comment on the status of its search for infrastructure investment managers.
Finch said his company would be advising on a second round of procurement for infrastructure investment management on behalf of local government pension funds next year.
According to IFM Investors, the Avon fund has £3.58bn in assets and the Dorset fund has £2.2bn.