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Local government pensions consider investing in schools

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UK - UK local authority pension funds officials have been in discussions with a quasi-government body about the prospect of investing in the building of UK schools through private finance initiatives (PFIs).

A spokeswoman for Partnerships for Schools, a quasi-government body created to manage the building of schools through PFIs, said it has been approached by local government pension fund advisers to consider whether they would be willing to include pension fund assets as an investment route for the building of schools.

"We are working extremely hard on a range of proactive measures to ensure that deals continue to close - from securing support from the European Investment Bank to exploring the option of accessing shorter term debt," said the spokeswoman.

"We have been approached by local government pension fund advisers for initial discussions to explore whether local government pension funds could provide an additional source of funding for schemes that have a PFI component.

She was keen to stress the body had not been approached by the local authorities themselves - a move which one pensions expert suggested would be seen as somewhat controversial because there are already concerns being flagged about the lack of division in the management of pension fund assets and other local authority monies.

Ian Greenwood, chairman of the Local Authority Pension Fund Forum, said a handful of local authority pension funds are understood to have been approached about the prospect of investing in property through a PFI initiative, though he had reservations about the validity of what he sees as a raid on pension fund assets to cover a shortfall in the funding of local government projects.

"If you are a pensions unit you are responsible for that money and effecting the trust of the benefits," said Greenwood.

"It may be that building schools is a good idea but there is far too much potential for problems. And when pension funds are under stress, it is inappropriate," he argued.

With talks at such an early stage it is unclear in what form any investment could potentially take.

So, interestingly, while investing pension fund money directly into the building of local schools might seem inappropriate, Greenwood does suggest the ethical dilemmas could be removed by investing in PFI projects through infrastructure funds, managed by external asset managers.

"There may be room for this through the development of infrastructure funds, and [local authority pension funds] could perhaps help PFI that way, as a long-term asset with long-term liabilities. But the idea that councils would be able to invest pension fund money into this and effectively subsidise schools with pension fund money is wrong," added Greenwood.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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