Facilitate long-term infrastructure investment by tapping into captive funds

Context

• The Pensions Infrastructure Platform (PiP) allowed pension schemes to facilitate long-term infrastructure investment in the UK.
• PiP was designed as a not-for-profit alternative to existing fund management offerings, being owned directly by pension funds. It was launched as a collaboration between the Pension Protection Fund (PPF) and the National Association of Pension Funds. It attracted 10 founding investors: the pension funds for BAE Systems, the BBC, British Airways, BT, Lloyds TSB, Strathclyde, and the West Midlands, as well as the PPF, LPFA, and RPMI.
• The UK Treasury projected an allocation of GBP20 billion of pension assets towards infrastructure projects.

Problem

• The UK government needed to access captive funds to invest in national infrastructure development.
• The smaller pension funds did not have the capacity nor the UK infrastructure industry insights to invest in large-scale and longer-term infrastructure investment by themselves.

Stakeholders involved

• Pension Protection Fund
• National Association of Pension Funds
• Wind farm operators

Innovation

• PiP allowed pension schemes of all sizes to invest in national infrastructure projects by pooling resources into a single investment fund.
• PiP was established by UK pension schemes to operate and invest for pension schemes. This collaborative, mutual approach provides investor schemes with better alignment, better governance, and better value.
• For larger infrastructure projects, PiP made direct investments as well as channelled additional investment through its founding investors.
• PiP’s mandate is only to cover its operating costs, thus providing maximum return to its investors.

Timeline

Results and impact

• The PiP has raised GBP260 million over several funding rounds.
• The PiP has made GBP370 million in investments in infrastructure projects.
• Since authorisation in 2016, the PiP has established a portfolio of 17 assets, mostly through its
  multi-strategy fund, covering the energy from waste, renewables, social, and transport sectors.
  The portfolio has a net asset value of more than GBP700 million.
• At the time of acquisition by the Foresight Group in 2020, the PiP had GBP1.8 billion (USD2.5 billion) in infrastructure investments under management.

Key lessons learnt

• Planning: The GBP20 billion target by HM Treasury was unrealistic, and the PiP was initially seeking a more modest GBP1 billion in assets that can be leveraged to GBP2 billion.
• Funding: To bring in institutional investors, such as pension funds, infrastructure investments will only be made if investors are able to earn adequate risk-adjusted returns. It involved contracts and regulatory frameworks that are more complex and of longer duration than in most other parts of the economy, operated under the double imperative of ensuring financial sustainability and meeting user needs.
• Governance: Although the setting up of PiP did not eliminate the competition between the PiP and its founding investors for infrastructure investment opportunities, value was created through increased cooperation.