U.K. public policy-makers urged to push for larger pensions to enhance infrastructure investment
A new report by a U.K.-based think tank is suggesting public policy should shift to allow pension plan investments to help bolster the country’s infrastructure needs.
The report, by the Social Market Foundation, urged the government to foster the growth of fewer, but larger, pensions funds, with the scale to make major infrastructure investments. “Learning from Australia and Canada, the U.K. should pursue a strategy of creating large ‘superfunds’ able to invest in large illiquid assets. Pension scheme charging rules should be reformed to allow funds of sufficient size to pay management fees for infrastructure investments.”
Also looking to Canada’s system, the report said the U.K. should establish a project bond market where investors allocating towards infrastructure would sell bonds.
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It also suggested that British politicians take on the role of actively shaping public opinion on the role of infrastructure and normalizing the idea of these projects making a profit. “Stronger arguments for the local benefit of infrastructure — and a public willingness to take on local doubts — would help allay investors’ concerns about risk. Ministers should also explain why private profit from public infrastructure is not a flaw of policy but a necessary condition of investment — and, indeed, a benefit to pension scheme members.”
After a roundtable discussion between academics, politicians, former officials and investors, the report found the risk of a shifting regulatory landscape was a major barrier for private capital investors. “One expert taking part in the roundtable noted how the regulatory environments in some ‘big infrastructure’ sectors, such as the electricity and water and sewerage, had made private investment much more difficult and had probably deterred a substantial amount of private capital from investing in those industries.
“It was acknowledged that the regulatory environments governing those sectors had, in part, evolved the way they had in order to tackle perceived excessive profits and returns on capital., highlighting how there can be a genuine tension, but one which needs to be resolved if the private sector is to invest more in infrastructure.”
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