As Railpen expands its investments in essential infrastructure and renewables, investment director Lewis Vanstone tells Piyasi Mitra about the pension fund’s strategy for balancing sustainability, growth and liquidity.
As institutional investors continue to shift towards private assets, Railpen, one of the largest pension managers in the UK, is making strategic moves in infrastructure and renewable energy.
From acquiring a 25% stake in Verdis, a Nordic waste collection business, to deepening its partnership with Scottish independent renewable energy business GreenPower in the UK, Railpen is increasingly focused on long-term, sustainable growth. Lewis Vanstone, investment director, Railpen, offers insights into the fund’s approach to essential infrastructure, renewable energy, and private market liquidity, highlighting how various investments are allowing Railpen to better manage risk, costs and governance.
investment director, infrastructure & energy, Railpen
Why essential infrastructure?
Last year, Railpen, manager of the £34 billion railways pension scheme in the UK, acquired a 25% shareholding in Verdis (formerly Urbaser Nordic), a Nordic municipal waste collection operator. As an essential infrastructure service provider, Verdis delivers municipal waste collection services to over six million inhabitants in approximately 100 municipalities across Denmark, Norway, Sweden and Finland.
Since the acquisition, Verdis has been expanding its core municipal waste collection activity. Verdis’ revenues are underpinned by a diversified portfolio of medium- to long-term contracts with local authorities, which are largely availability-based and inflation-indexed, providing strong resilience through economic cycles. The company has established itself as a leader in sustainable operations, with approximately 50% of its truck fleet being electric or biofuel-powered.
“We see strategic advantages in essential infrastructure investments for two reasons: downside protection and growth opportunities," shares Vanstone. Railpen’s investment in Verdis marked its first direct infrastructure investment in the Nordics, a move driven by both downside protection and growth potential.
Vanstone explains that essential infrastructure provides a certain degree of resilience in uncertain markets. “Verdis provides essential waste collection services through medium-term, inflation-linked revenue contracts with high-credit local government counterparties, using its existing fleet of vehicles,” says Vanstone. “The existing contracts, fleet, established capability, management team and track record in the waste collections space ensure Verdis has defensive qualities and provides a level of downside protection for Railpen as an investor.”
Beyond its defensive attributes, Verdis presents a growth opportunity as waste regulations evolve. Increasing waste separation requirements, higher collection frequencies, and the need for biofuel and electric waste trucks are driving demand for waste collection services. This regulatory shift could result in higher contract volumes and increased revenues for infrastructure investors like Railpen, according to Vanstone.
However, he also acknowledges the risks. “Like all investments, it is not without risks. It is an operational business with a cost base that needs careful management. It faces competition for contract renewals and tenders and must bid with price discipline.”
“We see strategic advantages in essential infrastructure investments for two reasons: downside protection and growth opportunities.”
Renewable energy expansion
Railpen’s focus on renewable energy infrastructure aligns with its commitment to delivering stable returns while having a positive environmental impact. Its partnership with GreenPower reflects this strategy, highlights Vanstone.
“In March 2020, Railpen purchased 90% of Carraig Gheal Wind Farm in Argyll and Bute from GreenPower International,” Vanstone shares. The 46MW wind farm, operational since 2013, can power around 32,000 households with clean energy.
The pension manager’s involvement in Barachander, a ‘sister’ wind farm project, is currently
at the pre-planning consultation stage with the intention to submit a planning application later
this year. With the addition of Barachander, subject to the project being successfully developed,
Railpen will be supporting energy provision for the equivalent of over 250,000 homes across
its renewable assets portfolio.
GreenPower specialises in developing, constructing and operating UK renewable energy projects, particularly wind farms in Scotland, and Vanstone highlights the importance of strategic partnerships in this sector. “Partnering with the team at GreenPower provides Railpen with a knowledgeable and capable partner that helps us achieve our goals of both delivering returns and having a positive impact on the environment. GreenPower is a shareholder in both Carraig Gheal and Barachander Wind Farms alongside Railpen, providing true alignment of interests between the parties,” he adds.
“As a direct investor, we own a stake in the underlying asset, meaning there is a broader universe of potential buyers, including asset managers, other asset owners, and strategic investors such as corporates. This broader participation likely improves liquidity, both from a timing and valuation perspective.”
The liquidity challenge
A shift taking place is witnessing “traditional” investors increase allocations to private assets. These include real estate and infrastructure, two asset classes renowned for their return potential, diversification qualities and inflation-hedging capability. However, is it necessary to lock up investments for lengthy periods in private-market vehicles to tap these benefits?
Vanstone explains how Railpen manages this liquidity challenge. “For an allocator or limited partner (LP) approach, it is necessary to lock up investments for the duration of a fund’s life. However, this is not the case for direct investors.”
LPs in infrastructure funds managed by asset managers face liquidity constraints if they wish to exit before a fund’s maturity. While secondary sales provide an option, they tend to be less liquid and often involve selling at a discount to net asset value (NAV), particularly in volatile market conditions.
“As a direct investor, we own a stake in the underlying asset, meaning there is a broader universe of potential buyers, including asset managers, other asset owners, and strategic investors such as corporates. This broader participation likely improves liquidity, both from a timing and valuation perspective,” says Vanstone.
The pension manager’s direct investment approach also reduces costs and enhances control. “Investing directly avoids management fees, eliminates the agency problem, and gives us greater governance and decision-making influence over the asset.” This strategy allows Railpen to decide whether to hold the asset long-term for income and capital growth or exit to reinvest capital in other opportunities, shares Vanstone.
Listed infrastructure
For investors seeking exposure to infrastructure while maintaining liquidity, listed infrastructure trusts and funds offer an alternative. These vehicles, many of which focus on renewables and low-carbon investments, provide access to the transition towards a low- carbon economy. However, Vanstone notes that listed infrastructure funds tend to be income-focused rather than growth-oriented.
Since 2023, these funds have been trading at material discounts to NAV, reflecting weaker investor sentiment. “Most market commentators link this to the rise in gilt yields and the cost of capital,” says Vanstone, highlighting the challenge of investing in listed infrastructure when interest rates are high.
Railpen is strengthening its commitment to renewable energy through its part-ownership of Constantine Energy Storage (CES). CES has partnered with Habitat Energy and EDF to optimise 285MW of battery energy storage systems (BESS) across the UK.
These assets—located near Birmingham, Manchester, Leeds, Cheshire, and North Wales—will help balance electricity supply and demand, making renewable energy use more efficient. As the UK targets a fully decarbonised power system by 2035, energy storage solutions will play a crucial role in keeping the grid stable, according to the pension manager.
Railpen, alongside Alberta Investment Management Corporation, took a 94% stake in CES in 2022, recognising battery storage as key to making renewables more reliable. Since its founding in 2021, CES has developed large-scale battery projects across the UK, with over 1.6 GWh in its pipeline and 770MWh under construction. Optimising these systems will help store excess renewable power, reducing waste and easing the transition to cleaner energy.
By expanding its investments in green energy and infrastructure, Railpen is securing stable long-term returns for its pension members while contributing to a more sustainable and resilient UK energy system.
