The UK Chancellor’s commitment to infrastructure spending has been described as “upside down” and looks set to trigger a debate on how useful it will be to pension fund investors.
Chancellor of the Exchequer Phillip Hammond committed £24 billion (€28.1 billion) in the UK Budget yesterday to infrastructure projects over the next five years.
David Curtis, head of UK institutional sales at Goldman Sachs Asset Management, said that while government investment in infrastructure can be an attractive investment for pension funds needing long-term investments, its value depends on the kind of projects being pursued.
Core infrastructure projects that are already operational – known as ‘brownfield’ projects – and that offer “solid, nominal or inflation-linked income are exactly the kind of projects needed by schemes struggling to find sufficient long-term investments”, said Curtis.
But ‘greenfield’, or early-stage projects, lack the same benefits and are unlikely to appeal.
Sir Merrick Cockell, chairman of the largest local government pension scheme provider, the LPFA, said he was encouraged by the Chancellor’s move and added that, while there is no shortage of funds to invest in UK infrastructure, there is a lack of appropriate assets and right deals to invest in.
“Hopefully an economic infrastructure plan will include how to finance such developments and involve potential asset owners, such as UK pension funds, right from the beginning,” said Cockell.
Christopher Mahon, director of asset allocation research at Baring Asset Management, noted that major infrastructure projects like Heathrow and Hinkley nuclear power plant would not be completed for another 20 years.
“Britain seems to be locked into a type of topsy-turvy spending dogma which results in the UK’s well known productivity stagnation,” said Mahon, who said government infrastructure spending was “upside down”.
Meanwhile, the Investment Association (IA) chief Chris Cummings welcomed the Chancellor’s announcement. The IA is backing the development of a UK municipal bond market, which it says will help local authorities secure much-needed financing to invest in new infrastructure projects and meet their refinancing needs.
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