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UK Treasury signs infrastructure memorandum with LPFA, Greater Manchester

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UK - Institutional investors representing £50bn (€58.2bn), including the Greater Manchester Pension Fund and the London Pensions Fund Authority (LPFA), have signed a memorandum of understanding with the Treasury to promote investment in the UK's infrastructure, the Treasury has announced.

In the autumn statement by chancellor of the exchequer George Osborne, it was revealed that £6.3bn of funds - generated through ongoing savings from the current financial year - would be used to fund projects, while a new National Infrastructure Plan would commit a further £5bn during the next spending review period.

In addition the Treasury committed to working closely with industry associations such as the National Association of Pension Funds (NAPF) and the Association of British Insurers (ABI) to raise as much as £20bn (€23bn) from the private sector.

The NAPF revealed earlier this week that it had signed a memorandum of understanding with the Pension Protection Fund (PPF) and the Treasury to establish an as yet undefined new "platform" to facilitate increased infrastructure investments from pension funds.

Commenting on today's announcement, the NAPF's chief executive Joanne Segars said: "The government hopes to unlock £20bn, but the amount that comes from pension funds depends on the structure of the investment platform and the pricing of the assets.

"We are at a very early stage, and there are no plans or details on the table yet. We look forward to developing proposals with the Treasury over the coming months."

Documents released as part of the statement reveal that a second memorandum was signed with other investors, including the £10bn Greater Manchester local authority scheme, the £4.1bn LPFA, Luxembourg-based Meridiam infrastructure fund and Hermes GPE, to develop proposals aimed at "significantly increasing funding from the earliest stages of construction through to operation and beyond".

Over the coming weeks, it would "predominantly" work with corporate pension funds to attract increased long-term investment in greenfield infrastructure.

Speaking to IPE, LPFA chief executive Mike Taylor said that no investment commitments had been made.

"Our purpose in signing was to get involved in the discussions that are no doubt to follow, given that this is an asset class we like and we would like to discuss what could make this more attractive to pension funds," he said.

Greater Manchester Pension Fund, which earlier this year invested in an EISER infrastructure fund, was not available for comment at the time of publication.

Giles Frost, director of Amber Infrastructure Group said it was "absolutely the right time" to develop such proposals, given the outlook for a prolonged lack of growth, and noted the higher exposure institutional investors in both North America and Australia had to the asset class.

Sally Capp, agent general for the state of Victoria, praised the chancellor's decision, adding that Australia had enjoyed success with "transparent and efficient" infrastructure procresses.

"It has proved to be a winning investment strategy for us, improving the productivity of the economy and catering for its rapid growth. This is a good move from the UK government," she said.

However, Hymnans Robertson warned against a "copycat approach" of structures already in place overseas, saying there were "important UK-specific considerations".

John Hastings, a partner at the consultancy noted that many UK defined benefit schemes were closed. "These schemes are more likely to need streams of annuity income rather than equity exposure. Any infrastructure deal needs to be structured in this way to maximise its usefulness for schemes."

He added that the country's defined contribution schemes were currently not mature enough to consider such an investment approach, although he admitted that this could change in future.

The director general of the UK's insurance lobby ABI, Otto Thoresen meanwhile was more positive, saying that increased investment would help the economy "fight its way back to growth".

"We want to work with the Government to create a new asset class of infrastructure bonds which could see insurers investing in everything from railways to new hospitals," Thoresen said, stressing that it was important to remember that the involved pension funds and insurance companies would be investing people's savings.

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