Pension funds may bear risk on infrastructure projects

Pension funds may yet consider investing in UK infrastructure projects even if they have to bear some construction risk, industry leaders have said.

The government has made pension fund investment in infrastructure a cornerstone of its plans to boost activity in the sector, but until now such funds have been reluctant to take on risk related to the construction process. And last month it emerged that the pensions infrastructure platform (PIP), the vehicle set up to help deliver on chancellor George Osborne’s call for pensions to invest £20bn in infrastructure, had only attracted £700m in investment – a third of the £2bn it had hoped to raise before its launch next year.

However, speaking to Building, Joanne Segars, chief executive of the National Association of Pension Funds, which backs the PIP, said some pension funds would be prepared to take on an element of construction risk, particularly if the government streamlined the planning process, drove down management fees for higher-risk funds and used the UK Infrastructure Guarantees scheme to underwrite projects.

“Construction risk can be an issue and many funds are not keen on it. However, there are ways of mitigating it, and we will see how things develop as PIP gets ready to launch. I think some pension funds are happy to take on construction risk,” she said.

Nelson Ogunshakin, co-chair of the National Infrastructure Plan Strategic Engagement Forum, agreed that it would be possible to get pension funds to take on an element of construction risk.

“Contrary to perceptions in the marketplace, pension funds are keen and willing to get involved in greenfield projects,” he said. “But for them to take a more proactive role, the protracted risk in planning needs to be mitigated.”

Nigel Keogh, pensions technical manager at the Chartered Institute of Public Finance and Accountancy, said risk “in and of itself need not be an ultimate deterrent”, but added that the returns pension funds would require to justify the risk would likely make schemes unviable.