Pension funds ‘should invest in infrastructure’

26 Oct 09
More must be done to encourage pension funds to back large-scale national infrastructure projects, the chief executive of Partnerships UK has said
By David Williams

23 October 2009

More must be done to encourage pension funds to back large-scale national infrastructure projects, the chief executive of Partnerships UK has said.

Speaking at the agency’s annual conference in London on October 15, James Stewart said that a new financial instrument for pension funds should be invented to pay for transport, communications, waste and energy projects.

‘We’re going to need to make a massive investment in strategic infrastructure,’ he told delegates.

‘That’s vital to ensure the UK remains competitive on a worldwide scale and to ensure the economy grows.’

Only centralised schemes could promote an effective switch away from fossil fuels to renewable energy sources, he said. ‘If we are to finance this, the pension funds are going to have to play a very large part. They are the natural long-term lenders to this sector.’

He recommended developing a subordinated debt market to encourage investment from private sector pension funds.

Doug Segars, project director at Partnerships UK, told Public Finance that such a mechanism could encourage public sector funds to help finance strategic infrastructure projects.

Stewart also described how the Private Finance Initiative had remained popular for locally delivered projects such as school and hospital rebuilds since last year’s financial crisis. However, he said, it was not being widely used for larger central government schemes.

‘Deals are closing… the market is working at the moment. [But] local authority projects are dominating. The size of the projects has shifted dramatically compared with three or four years ago.’
Stewart’s remarks followed plans drawn up by the Local Government Association to pool their pension pots into a single fund, which could then be used to invest in public-private partnerships.

Ian Pearson, economic secretary to the Treasury, also spoke to the conference. He underlined the need to invest in infrastructure, describing it as the ‘backbone of the economy’.

Future development priorities would be set by Infrastructure UK, the advisory body announced by Prime Minister Gordon Brown in July’s policy document, Building Britain’s future. The body would also identify where private finance could be brought in, Pearson said.

Ben Lucas, director of the 2020 Public Services Trust, said now was the time to decide whether government should have a bigger role in strategic development and a smaller role in service provision.

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