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NAPF, PPF back UK Treasury's proposed £20bn infrastructure fund

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UK - The UK's National Association of Pension Funds (NAPF) has thrown its weight behind a government plan to attract £20bn (€23.3bn) of pension fund capital to infrastructure projects, helping to address a funding shortfall for around 500 proposed ventures over the next decade.

Although details of the scheme are yet unclear, the NAPF said in a statement that it had signed a memorandum of understanding with the government, alongside the £6bn Pension Protection Fund (PPF), for the development of an infrastructure platform that would make it easier for UK schemes to invest in the asset class.

The PPF - recent winner of an IPE Award for investment innovation - said it welcomed the announcement and the opportunity to remove barriers, allowing for efficient investment in infrastructure.

Its chief executive Alan Rubenstein added: "We see infrastructure as a core component of the PPF's investment strategy."

More details of the proposal are likely to emerge tomorrow during a budget forecast by the UK's chancellor of the exchequer George Osborne. However, the NAPF statement said the platform would allow UK pension funds to "pool their resources" and invest "in a new way". 

An NAPF spokesman was unable to clarify how the new platform would differ from current infrastructure funds - nor what would be new about it.

He said details of the precise mechanism for pension funds to invest in UK infrastructure projects "may come out months down the line".

The spokesman was uncertain how much influence the NAPF would have on the eventual structure adopted under the new scheme, simply saying that they were proceeding with the memorandum of understanding with the best of intentions and stressing that the Treasury had so far been receptive.

"Our intention is to get the best deal under a strong model for pension funds. I don't know at this stage what that will be," he added.

Peter Wallach, head of pensions at the £4.7bn Merseyside local authority pension scheme, said that until the details of the vehicle were made public, it was too early to say whether his scheme would invest in it.

However, he added: "The fact that the NAPF and the PPF are backing it suggests efforts will be made to make it attractive to pension schemes. Infrastructure has certain characteristics that make it attractive to us as a pension fund but we're waiting for the detail."

The scheme in August invested £20m (€22.8m) in an AMP fund targeting mature-market assets. It has also invested in private finance initiative (PFI) projects.

Among the new scheme's first allocations will be £5bn on a new school building programme, with the previous Labour government's PFI - Building Schools for the Future - abandoned by the government last year, leading to a number of court cases by affected schools.

Up to now chancellor George Osborne had hinted the scheme would target primarily UK pension schemes, telling the BBC on Sunday: "British pension funds have not been investing the savings of British people in British infrastructure."

However, the US$406.9bn (€308.2bn) China Investment Corporation (CIC) expressed an interest in gaining exposure to UK infrastructure, with its chairman and chief executive signalling he would be open to direct investment in a letter published in the Financial Times.

Chairman Lou Jiwei said: "Traditionally, Chinese involvement in overseas infrastructure projects has been as a contractor only. Now, Chinese investors also see a need to invest in, develop and operate projects."
 
He added CIC was keen to work with fund managers or participate in UK public private partnership (PPP) projects as an equity investor.

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