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UK infrastructure - an interesting strategy with strong potential, say PIA members

29 November 2012

A Pension Investment Academy (PIA) seminar held in London yesterday concluded that there is a good degree of positive interest in UK infrastructure as a strategy to provide returns in the current low-yield environment.

Trustees and pension fund executives, representing schemes with assets in excess of £85 billion, supported this strategy as one to consider, although there remained some caution regarding asset availability and that the market was not yet ready to accommodate smaller-scale investment.

This followed a compelling presentation by a representative of the BT Pension Scheme (BTPS), who are a major participant in the Pensions Infrastructure Platform - a new initiative to increase the investment by UK pension schemes in UK infrastructure. A poll of the audience then showed that a perhaps larger than expected 29% of trustees confirmed they would consider investing in the strategy, a further 39% were undecided.

The event, which was held in conjunction with Westminster Business School, discussed three possible strategies for achieving returns in the current environment. The BTPS representative highlighted the low levels of infrastructure investment by European investors when compared to pension funds in Canada and Australia– and that the strong opportunities in the UK itself were being taken up by these nations, rather than UK investors. It was argued that UK pension schemes coming together to create scale would be able to realise the possible inflation linked returns from this strategy.

Mike Casagranda of Stone Harbor Investment Partners covered the impact of bank deleveraging on the dynamics of credit markets and sub-asset classes and argued the importance of looking across the credit spectrum for opportunities. This was followed by the support of alternatives by Fred Ingham of Neuberger Berman. Ingham discussed potential opportunities in distressed debt, reinsurance and corporate mergers and made a case for perseverance with the hedge fund market.

Fred Jaffe, an Executive Director at the PIA commented: "In these difficult economic times it is important that strategies such as these are openly discussed with trustees, who can then decide on the most appropriate action for their scheme. Scheme liabilities do not stay still while we wait for economic conditions to improve, so it is vital that new and appropriate strategies are scrutinised to find the areas of growth."

"The interest in infrastructure in particular amongst trustees in the questions after the presentations showed that this may be an area that receives wider focus and demand in future. But it is also important that trustees continue to take a keen interest in all strategy options to find their own path towards growth and returns.”

Although there was a discussion over the high fees charged by hedge funds and how the industry should address this going forward, 30% of the audience still expected to increase their hedge fund allocation over the next twelve months.

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