Agenda item

The Investments Manager presented the report. The Panel was being invited to approve the proposed policy framework. She reminded Members that it had been agreed to take the issue to the full Committee, because Infrastructure would constitute a new asset class. Mr Finch would lead a briefing session before the December meeting of the Committee. There were many different ways of investing in infrastructure, so it was proposed to delegate as much of the detailed decision making to officers and the Panel as possible. If the framework was too prescriptive it would prevent the Fund from taking advantage of available opportunities. Infrastructure was not like the Diversified Growth Fund or Emerging Markets where a fairly tight specification could be drawn up in advance. Mr Finch agreed that infrastructure was a broad category with many access routes. What was the point of having an infrastructure asset class? The answer was to take advantage of its different behaviour, which would provide additional diversification and an ongoing income stream.

The Chair said that there a number of issues to be considered. One was whether to invest in listed or unlisted companies. The other was UK versus global. There seemed to be far greater infrastructure opportunities outside the UK. A Member noted that one of the things the Fund was looking for was inflation protection, which might be easier to secure from UK rather than global assets. The Chair said that a third issue was whether infrastructure investment should be done directly in individual projects, or through a fund of funds structure. The Investments Manager said this would not be specified in advance; a tender would be issued and submissions reviewed. Mr Finch said that a important factor would be when funds were closed; the aim was to get projects going and to start earning returns as soon as possible.

A Member asked about the tender process to be followed. The Investments Manager replied that a significant issue was whether to go through the Official Journal of the European Union (OJEU) process or not. The OJEU process imposed a number of restrictions, such as not be able to respecify at a later stage. The Member said that an issue she would be concerned about would be the level of debt in particular projects. The Assistant Investments Manager suggested that leverage was part of every project. The Member, however, thought that the protection against interest rate changes was required.

A Member raised the possibility of reputational risk, for example through investments that harmed the environment. The Investments Manager responded that once a manager had been appointed, it would not be possible to control what they invested in. The Committee could only exercise control at the tender stage and through the due diligence process. The Head of Business, Finance and Pensions suggested that environmental regulation was so strict that there was little to fear, but the Member felt that this did not apply in emerging markets. The Investments Manager responded that the Fund did not need to invest in infrastructure in emerging markets to achieve its objectives. She suggested that there could be a discussion at the February Committee meeting on how to weight different aspects in the tender evaluation process.

A Member noted that a pension fund was a major investor in the Bath casino project. The Investments Manager replied that the Fund would only be able to invest directly in a limited number of projects, and so would not get the diversification that was desired by the direct investment route. Skilled investment managers were also required to achieve the best returns.

The Chair wondered whether having an investment partnership with other pension funds would give extra bargaining power. Mr Finch suggested that a company could be created as a joint investment vehicle. Alternatively agreement could be reached about data sharing, so that data gathering would only have to be done once by one of the partner funds.

The Chair wondered how the rate of return should be specified, as a percentage or linked to inflation. Mr Sheth said that it could be specified in a number of ways.

At the conclusion of the discussion, it was RESOLVED

1.  to recommend that proposed policy framework as amended should be presented to the Committee for approval at the December 2013 committee meeting;

2.  To delegate the tender process to officers who will consult the panel as required.