Pooling pension funds makes perfect sense

Far from the hysteria about "Granny tax II", London's pension investment plan can't come soon enough

Pension funds and infrastructure investment have enjoyed a recent revival in policy discourse. Last month Prime Minister David Cameron used a major speech on the economy to discuss infrastructure, ‘the magic ingredient in so much of modern life.’ In Budget 2012 Chancellor George Osborne announced a new Pension Infrastructure Platform. Yesterday they were the talk of the town in London.

The proposal to pool the pension funds of London boroughs and to invest these assets through a new infrastructure vehicle is good news both for the public purse and good news for the essential upgrades – to transport, utilities and communications – that the capital requires. However, a new debt vehicle will only go so far. To drive economic growth London councils should consider more fundamental reforms to the pooling of both finance and risk.

Pension funds have long time horizons. This means that they are well placed to invest in the infrastructure that is crucial to economic growth but will not realise immediate returns, such as new transport connections. In fact, there is a near perfect match between pension funds' appetite for long term assets and the need for long term financing of infrastructure.

Although underdeveloped in the UK the investment model has been pursued abroad; Canadian public pension funds are amongst the most active backers of infrastructure in the world. London councils are reportedly modelling their new approach on the Ontario Municipal Employees’ Retirement System (OMERS).

The scale of the OMERS model encourages collaborative working. This has provided the stability required for Ontario investment managers to build up management expertise. In the UK, councils that collaborate on investment decisions – through arrangements like those in place in Greater Manchester or under discussion in the Leeds city region – can raise far more money than those that work alone. In the absence of a clear national strategy for growth such local prioritisation and investment certainty is crucial.

OMERS holds CAD $55 bn in assets which makes it slightly smaller than the proposed £30 bn London fund. As of December 2010 OMERS had committed 15.5 per cent of its total portfolio to infrastructure. Its target allocation of 21.5 per cent dwarfs the investment planned by London council’s: 7.5 per cent of pension fund assets or £2.25 bn.

OMERS invests through its Borealis infrastructure vehicle. Borealis was established in 1999 and has built up sufficient expertise to run a varied infrastructure portfolio. London councils should consider establishing a similar independent vehicle so that decisions are based on the best business case for investment and the fiduciary duty of trustees, rather than political short-termism.

The relatively small scale of the Canadian infrastructure market means that OMERS has invested in international markets in order to meet its portfolio target. London boroughs may prefer to invest solely in projects in and around the capital, such as Crossrail or the proposed extension of the Northern Line to Battersea. However, prioritising local investments will undermine portfolio diversity. The boroughs will have to take a more holistic view of infrastructure for local economic growth.

London council’s may want to consider channelling local investments through a revolving investment fund (RIF). This would provide a vehicle through which councils could co-operate on the use of existing capital spending allocations and prudential borrowing. Greater Manchester has recently established a £1.2 billion RIF and agreed a city deal with the government that gives councils the opportunity to "earn back" up to £30m a year of tax for the growth it creates through infrastructure investments. This could include both corporate and income tax and demonstrates that Government is willing to consider potential funding opportunities that go way beyond the current plans for local business rate retention.

London boroughs could look to negotiate a similar deal, assessing infrastructure investment not only on stand-alone returns but on how they will underpin the development of London’s businesses.  If they succeed in this they could well have found a "magic ingredient" for economic growth. They may even have a few ideas to offer the Canadians.

London boroughs are planning to pool their pension liabilities. Credit: Getty

Joe is a senior researcher at the New Local Government Network

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The Women's March against Trump matters – but only if we keep fighting

We won’t win the battle for progressive ideas if we don’t battle in the first place.

Arron Banks, UKIP-funder, Brexit cheerleader and Gibraltar-based insurance salesman, took time out from Trump's inauguration to tweet me about my role in tomorrow's Women’s March Conservative values are in the ascendancy worldwide. Thankfully your values are finished. . . good”.

Just what about the idea of women and men marching for human rights causes such ill will? The sense it is somehow cheeky to say we will champion equality whoever is in office in America or around the world. After all, if progressives like me have lost the battle of ideas, what difference does it make whether we are marching, holding meetings or just moaning on the internet?

The only anti-democratic perspective is to argue that when someone has lost the argument they have to stop making one. When political parties lose elections they reflect, they listen, they learn but if they stand for something, they don’t disband. The same is true, now, for the broader context. We should not dismiss the necessity to learn, to listen, to reflect on the rise of Trump – or indeed reflect on the rise of the right in the UK  but reject the idea that we have to take a vow of silence if we want to win power again.

To march is not to ignore the challenges progressives face. It is to start to ask what are we prepared to do about it.

Historically, conservatives have had no such qualms about regrouping and remaining steadfast in the confidence they have something worth saying. In contrast, the left has always been good at absolving itself of the need to renew.

We spend our time seeking the perfect candidates, the perfect policy, the perfect campaign, as a precondition for action. It justifies doing nothing except sitting on the sidelines bemoaning the state of society.

We also seem to think that changing the world should be easier than reality suggests. The backlash we are now seeing against progressive policies was inevitable once we appeared to take these gains for granted and became arrogant and exclusive about the inevitability of our worldview. Our values demand the rebalancing of power, whether economic, social or cultural, and that means challenging those who currently have it. We may believe that a more equal world is one in which more will thrive, but that doesn’t mean those with entrenched privilege will give up their favoured status without a fight or that the public should express perpetual gratitude for our efforts via the ballot box either.  

Amongst the conferences, tweets and general rumblings there seem three schools of thought about what to do next. The first is Marxist  as in Groucho revisionism: to rise again we must water down our principles to accommodate where we believe the centre ground of politics to now be. Tone down our ideals in the hope that by such acquiescence we can eventually win back public support for our brand – if not our purpose. The very essence of a hollow victory.

The second is to stick to our guns and stick our heads in the sand, believing that eventually, when World War Three breaks out, the public will come grovelling back to us. To luxuriate in an unwillingness to see we are losing not just elected offices but the fight for our shared future.

But what if there really was a third way? It's not going to be easy, and it requires more than a hashtag or funny t-shirt. It’s about picking ourselves up, dusting ourselves down and starting to renew our call to arms in a way that makes sense for the modern world.

For the avoidance of doubt, if we march tomorrow and then go home satisfied we have made our point then we may as well not have marched at all. But if we march and continue to organise out of the networks we make, well, then that’s worth a Saturday in the cold. After all, we won’t win the battle of ideas, if we don’t battle.

We do have to change the way we work. We do have to have the courage not to live in our echo chambers alone. To go with respect and humility to debate and discuss the future of our communities and of our country.

And we have to come together to show there is a willingness not to ask a few brave souls to do that on their own. Not just at election times, but every day and in every corner of Britain, no matter how difficult it may feel.

Saturday is one part of that process of finding others willing not just to walk a mile with a placard, but to put in the hard yards to win the argument again for progressive values and vision. Maybe no one will show up. Maybe not many will keep going. But whilst there are folk with faith in each other, and in that alternative future, they’ll find a friend in me ready to work with them and will them on  and then Mr Banks really should be worried.