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Strathclyde agrees 'in principle' to back UK infrastructure vehicle

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UK - Strathclyde Pension Fund, the UK's largest local authority scheme, has agreed "in principle" to provide  £100m (€123m) to the infrastructure platform being developed by the National Association of Pension Funds (NAPF).

According to minutes from a committee meeting last week, the £11.3bn fund has agreed to provide at least £100,000 in launch capital to the venture, the result of a memorandum of understanding signed between the NAPF, the Pension Protection Fund (PPF) and the Treasury last year.

Members of the scheme's pension fund committee also agreed in principle to supply an additional £100m to the Pension Infrastructure Platform (PIP), the seed capital required to become a founding investor in the venture with a projected 25-year life.

However, the minutes noted that any "firm" commitment would be subject to further approval after several issues regarding the PIP's design had been agreed.

The proposal presented by Strathclyde's chief pensions officer Jacqueline Gillies sheds further light on some of the areas the PIP would consider for investment - with PPF chief executive Alan Rubenstein previously only discussing potential regions or sectors in broad terms.

The platform is expected to target its £2bn investment, potentially leveraged to £4bn, at public sector projects such as schools, hospitals and local authority-funded accommodation, as well as transportation, energy and telecoms infrastructure.

Additionally, the committee was told that Strathclyde's commitment could gain it exposure to environmental infrastructure, such as water treatment and desalination plants.

The proposal added that the PIP would target a 2.5% return in excess of the UK retail prices index each year, with a "minimum level" of exposure to UK projects agreed in advance, as well as limits on other geographies and sectors.

While discussing the vehicle with IPE earlier this year, Rubenstein said he was open to building an in-house investment team or allowing a third-party manager to oversee the investments.

However, Gillies' proposal notes that the "preferred approach" is for investment expertise to be built up internally.

Strathclyde recently agreed to modify its strategic benchmarks in an effort to de-risk its investment portfolio, with the benchmark amended to see a 0.5 percentage point increase in global real estate.

Both its global and UK property holdings - managed by DTZ and Partners Group, respectively - are currently underweight, only accounting for 7.5% rather than 12% - and in future 12.5% - of scheme assets.

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