Mark Whitehead 10 January 2020

LGPS: Unlocking infrastructure

Local government workers might often wonder what happens to the money they pay in to their pension scheme each month. They may not realise they are helping to pay for the train they take to work, the water they drink or the electricity powering their homes.

Ted Frith was recently appointed chief operating officer at GLIL, an organisation that runs a pension fund which includes investments of more than £1bn in core infrastructure projects.

He explained to LGN that it’s an organisation with a solid local government pedigree, formed in 2015 with an initial £500m investment by Greater Manchester Pension Fund and the London Pensions Fund Authority. The following year it expanded to include other council pension funds in Merseyside, West Yorkshire and Lancashire.

GLIL’s ethos is to invest in socially useful projects, following the steer given back in 2013 by then chancellor George Osborne, who wanted the huge assets stored in public sector pension funds to help strengthen the country’s vital infrastructure.

But Mr Frith is keen to point out that GLIL’s approach is to look for profitable investment opportunities and then as a secondary, but essential, consideration, to check that they are socially usefully.

‘Infrastructure as an asset class is attractive to pension schemes,’ he told LGN. ‘By operating the way we do we are able to offer a sophisticated investment opportunity that represents very good value while at the same time delivering socially useful outcomes.’

Pension funds, he says, require the kind of long-term stability infrastructure projects offer. The risk is relatively low - compared, say, to investing in the latest Silicon Valley adventures – and the returns are not as high as in some other sectors. But water, energy and the like will always be needed.

GLIL’s investments include Anglian Water - one of the strongest performing utilities in the UK, which offers predictable, inflation-linked cashflows, and Clyde Windfarm, one of the UK’s biggest green energy providers.

It has a portfolio of renewable projects through an investment partner that develops, builds and operates small-scale bioenergy assets. These make use of agricultural waste, generating electricity and heat in an environmentally friendly way and are expected to produce stable returns for the next 25 years.

GLIL has also invested in a company to provide two new fleets of rolling stock which will operate on the Greater Anglia and South Western networks, and Forth Ports, one of the UK’s largest groups of its kind, operating in Tilbury in the south east of England and several Scottish ports.

Other investment sectors in the GLIL portfolio include healthcare, education, accommodation, transport, community health and prisons.

Mr Frith, who took on his current role last year, is co-ordinating GLIL’s activities as it looks to invest in more UK infrastructure projects and grow its investor base.

He has 30 years’ experience in the financial services industry, having held a number of senior positions including managing director of the banking group Dresdner Kleinwort Wasserstein and head of European distribution at Aspect Capital.

The GLIL fund is managed to achieve returns of at least inflation (consumer prices index) plus 4-6% over a rolling ten-year period. The investments are expected to have certain characteristics, including, for example, that they are substantially backed by durable physical assets with long life and low risk of obsolescence, and inflation-linked cash flows.

Investments are expected to provide returns that are largely isolated from the business cycle and competition. As the manager of funds that provide people’s pensions, GLIL wants to invest in reliable, stable long-term projects.

This is achieved not only through choice of projects to invest in but by a close relationship with the organisations making use of the investment, often by having a GLIL director on the board. ‘In our world governance and social responsibility are important,’ Mr Frith says. ‘We think the only way we can deal with those issues is by having influence at the top table. It means we know what’s going on day-to-day and how pensioners’ money is being used.

‘Commercial considerations come first but we want to know that the investment is having a positive impact. After all, it’s people’s pensions we’re talking about. We want to know their money is making a good return but also that it’s backing socially useful projects.’

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