If the UK government wants to encourage more institutional investment in infrastructure, it must shape projects in a way that gives pension funds low-risk cash flows, and appoint a minister specifically for infrastructure, the head of the Pensions Infrastructure Platform (PIP) said.
The PIP confirmed it helped secure more than £370m (€506.6m) of investment commitments on behalf of UK pension schemes in the Thames Tideway Tunnel (TTT) project via Dalmore Capital.
It said the Bazalgette Tunnel Limited consortium, of which Dalmore is a part, received the licence to own the £4.2bn London “super sewer” on August 24.
Mike Weston, chief executive of the PIP, said: “The Thames Tideway Tunnel is a great example of how even greenfield projects can have the risk mitigated to a level acceptable to pension funds.”
He said the construction risk usually involved in greenfield infrastructure projects was too high for pension scheme investors typically looking for low risk, long-term, inflation-linked returns to help meet regular pension payment obligations.
Dalmore said back in July that it had secured £440m of commitments for its TTT fund from UK pension funds and European investors, and PIP investors were understood to account for most of that, having made a £370m co-investment alongside Dalmore earlier in the month.
The PIP was set up by the UK National Association of Pension Funds (NAPF) and backed by the UK government, to channel investment into domestic infrastructure.
Weston said the PIP wanted to see more investment opportunities like the TTT for UK pension funds.
“If the government is serious about increasing institutional investment in infrastructure, then it needs to ensure a long-term pipeline of opportunities is in place to give pension schemes the confidence to build their internal investment systems and capabilities,” he said.
In addition to this, the government has to be prepared to structure projects to deliver the low-risk cash flows pension schemes need, he said.
“Finally, the government must appoint a minister specifically for infrastructure to oversee these large projects, which will typically cut across a number of government departments,” Weston said.
The TTT project will create a new sewer and build a 25km tunnel below the River Thames.
It is due to be completed by 2023.