Pensions Infrastructure Platform pledges further £1bn investment in UK infrastructure

PIP's chief executive Mike Weston announced the proposed PIP Multi-Strategy Infrastructure Fund (PIPMIF1) at a seminar hosted by the platform this week, according to InfraNews, which carried some of his comments (registration required). The new fund will aim to invest in senior and mezzanine debt and equity in a range of infrastructure assets, Weston said.

The announcement coincided with the publication of an in-depth report into the UK's improving economic prospects by the inter-governmental Organisation for Economic Cooperation and Development (OECD). The report found that although annual economic growth in the UK rose by 2.6% in 2014, faster than any other country in the G7 group of large global economies, "protracted underinvestment" was undermining the quality of UK infrastructure.

"That the PIP is launching a new fund is clearly good news. It demonstrates the continuing appetite for investment in UK infrastructure. The timing of this announcement also coincides with the OECD's encouragement to UK plc to invest more in its own infrastructure, which lags behind the majority of its European neighbours," said projects partner Jonathan Hart at Pinsent Masons, the law firm behind Out-Law.com.

"However, at the risk of being accused of providing the same old message, there is a danger of investments from funds like PIP becoming a Pyrrhic victory. Despite this being an election year in the UK an important question to ask is where are the new schemes being promoted by the government which are ready for investment? It would be tragic if the effect of potential new institutional funding served only to further inflate prices for assets on the secondary market, given the absence of appropriate greenfield opportunities," he said.

"Infrastructure projects are - in principle - attractive assets for private equity investors and debt providers," the OECD said in its report. "They tend to offer stable returns, low volatility and hedge inflation. They also help to diversity portfolios as the correlation between infrastructure investment and other assets is low, especially for equity capital."

"However, long-term institutional investors (such as pension funds and life insurers) still allocate only a limited share of their resources on direct infrastructure investment. Also, they seem to prefer the secondary market, as capital can be deployed quickly across a broader range of assets and the planning, construction and start-up stages of projects involve high risks that investors prefer to avoid," it said.

The OECD said that the UK government's National Infrastructure Plan, which sets out an updated list of its investment priorities annually, was a "welcome first step" that would ultimately contribute to reducing policy uncertainty. However, it said that the government had to provide more projects that are ready to finance, and to take on more project risk in order to encourage risk-averse long-term investors to become more involved in the funding of infrastructure projects.

The creation of the PIP was announced in November 2011, when the UK Treasury signed an agreement with the pensions industry to work together on the creation of an efficient investment platform for private pension fund managers. It is managed by fund manager Dalmore Capital, and was the first pooled infrastructure fund for pension funds in the UK.

The PIP's first investment fund, known as the PIP Equity Fund and also managed by Dalmore, raised £260 million from seven institutional investors at its first financial close in February 2014. Speaking at the same event, Dalmore partner Michael Ryan said that the PIP Equity Fund was "on track" to raise £500m by the end of the first quarter of this year, according to InfraNews. The fund has already committed £255m to 42 projects and is currently the preferred bidder to acquire a further £170m of assets, Ryan said.

Weston said that the PIP was in the process of hiring an investment director, a head of risk and analysts for the planned PIPMIF1 fund, which he hoped would be up and running in late 2015 or early 2016, according to InfraNews.