One of London’s local authority funds is holding off on building up its infrastructure exposure, as it expects a proposed collective investment vehicle (CIV) will be able to achieve better value.
Camden Council said infrastructure had recently been a “very popular” asset class, but noted that said popularity was one of the reasons it was now hesitating.
A report prepared for the borough’s pensions committee by director of finance Nigel Mascarenhas said: “Its popularity may have meant it is now in demand and so at the very least is fairly priced to over-priced.”
The report went on to note that, due to the UK government’s interest in promoting infrastructure investment, it was “possible” that one of the next asset classes to be offered by the proposed London-wide CIV would be infrastructure.
The proposed CIV, which so far has the support of 28 of the capital’s 33 boroughs, hopes to be making its first investment this time next year.
The report added: “Given that infrastructure is relatively expensive, and the London CIV may look at this next, the fund should focus on private equity ahead of any decisions on infrastructure that are likely to be the subject of better value vehicles.”
Although the report said the fund should consider private equity, as it was largely cash neutral at present and would be able to cope with the illiquid nature of the investment, Mascarenhas sounded a note of caution.
“The committee should also be mindful of the government’s aim to reduce investment costs and investment into expensive asset classes,” he said.
“Ultimately, the fund is interested in investment returns after fees.”
The Department for Communities and Local Government has recently concluded a consultation examining a complete shift to passive mandates for all listed investments, as well as launching a number of national CIVs.
Mascarenhas also noted the existence of the Pensions Infrastructure Platform (PIP), backed by the National Association of Pension Funds, as a way of investing in infrastructure.
However, he said it “[looked] likely that this product does not offer the right return profile for us”.
Pension funds worth more than £65bn that initially backed the launch of the PIP – funding launch costs as well as earmarking £100m in initial capital – distanced themselves from the vehicle earlier this year.
The London Pension Fund Authority at the time expressed dissatisfaction with the PIP risk/return profile, while the BT Pension Scheme said it preferred to focus on its direct investment strategy.
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