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Strathclyde Pension fund to back infrastructure platform

THE £14 billion Strathclyde pension scheme, one of five backers of the Pensions Infrastructure Platform's first £500 million fund, has said the PIP would enable its members' savings to support jobs and investment in the UK economy.

The fund, run by Dalmore Capital and named the PPP Equity PIP,  was unveiled last week by the National Association of Pension Funds (NAPF) ahead of its annual investment conference, which opens in Edinburgh today.

It has already attracted commitments of some £260m from five pension schemes, including Strathclyde, and will be capped at £500m after fund-raising from other schemes.

Progress has been slow since Chancellor George Osborne said in November 2011 that he was targeting £20bn from pension schemes towards the UK's infrastructure investment.

However, Joanne Segars, the NAPF's chief executive, said it was "a major milestone for the PIP and fantastic news for all UK pension schemes that have an interest in infrastructure investment".

Councillor Paul Rooney, chairman of the Strathclyde Pension Fund, said: "Pension funds have been a little shy of infrastructure projects, not because they are poor investments, but because they were rarely structured in a way that was particularly accessible or attractive to us as investors."

He went on: "The PIP changes that because it is being developed by pension funds for pension funds - it understands what we need in terms of risk and long-term cash returns.

"The project also provides a very clear example of how the investment made by our members in their own futures also helps to support jobs, investment and the wider economy today."

The other four pathfinders are British Airways Pensions, Railways Pension Scheme, and West Midlands Pension Fund, along with the Pension Protection Fund.

Strathclyde Pension Fund has an estimated £13.6bn under management on behalf of more than 200 employers and 200,000 public sector staff.

Derek Stroud, a Glasgow-based partner in legal firm Pinsent Masons, said: "Canadian and Australian pension funds have been ahead of the game for years and it may be the UK is belatedly catching up. Constructed and operating infrastructure projects can offer a 20-25 year period of relatively safe returns and will largely be inflation-proofed, so you can see why this would be an attractive proposition, particularly where a pension fund's fixed-interest pool is probably suffering from low interest rates."

Mr Stroud said there were also associated risks for the schemes. He said: "For example, an investment in a greenfield site may carry construction risks, while opting for investment in an already built asset, which is up and running and with an operating agreement in place, could minimise exposure.

"The investment returns will vary, depending on the level of risk.

"The sweetener is that with Government-sponsored projects, you can expect a long and steady return and there should be no credit risk concerning receiving payment over the period of the concession."

In February 2012, Strathclyde Pension Fund provided a £35m loan facility to the private sector consortium in charge of the construction of Commonwealth Games Athletes Village in Glasgow, Mr Stroud said.

He added: "It is not for the fund to consider any local economic benefits but if that happens to be a consequence of the investment then so much the better.

"It will be interesting to chart the progress of PIP over the next few years and to see how independent funds respond to the Chancellor's clarion call to get involved in infrastructure."

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