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 Telegraph’s bizarre list of 100 reasons to be happy about Brexit

“Old-fashioned light bulbs”, “crooked cucumbers”, and “new vocabulary”.

As the economy teeters on the verge of oblivion, and the Prime Minister grapples with steering the UK around a black hole of political turmoil, the Telegraph is making the best of a bad situation.

The paper has posted a video labelled “100 reasons to embrace Brexit”. Obviously the precise number is “zero”, but that didn’t stop it filling the blanks with some rather bizarre reasons, floating before the viewer to an inevitable Jerusalem soundtrack:

Cheap tennis balls

At last. Tennis balls are no longer reserved for the gilded eurocrat elite.

Keep paper licences

I can’t trust it unless I can get it wet so it disintegrates, or I can throw it in the bin by mistake, or lose it when I’m clearing out my filing cabinet. It’s only authentic that way.

New hangover cures

What?

Stronger vacuums

An end to the miserable years of desperately trying to hoover up dust by inhaling close to the carpet.

Old-fashioned light bulbs

I like my electricals filled with mercury and coated in lead paint, ideally.

No more EU elections

Because the democratic aspect of the European Union was something we never obsessed over in the run-up to the referendum.

End working time directive

At last, I don’t even have to go to the trouble of opting out of over-working! I will automatically be exploited!

Drop green targets

Most people don’t have time to worry about the future of our planet. Some don’t even know where their next tennis ball will come from.

No more wind farms

Renewable energy sources, infrastructure and investment – what a bore.

Blue passports

I like my personal identification how I like my rinse.

UK passport lane

Oh good, an unadulterated queue of British tourists. Just mind the vomit, beer spillage and flakes of sunburnt skin while you wait.

No fridge red tape

Free the fridge!

Pounds and ounces

Units of measurement are definitely top of voters’ priorities. Way above the economy, health service, and even a smidgen higher than equality of tennis ball access.

Straight bananas

Wait, what kind of bananas do Brexiteers want? Didn’t they want to protect bendy ones? Either way, this is as persistent a myth as the slapstick banana skin trope.

Crooked cucumbers

I don’t understand.

Small kiwi fruits

Fair enough. They were getting a bit above their station, weren’t they.

No EU flags in UK

They are a disgusting colour and design. An eyesore everywhere you look…in the uh zero places that fly them here.

Kent champagne

To celebrate Ukip cleaning up the east coast, right?

No olive oil bans

Finally, we can put our reliable, Mediterranean weather and multiple olive groves to proper use.

No clinical trials red tape

What is there to regulate?

No Turkey EU worries

True, we don’t have to worry. Because there is NO WAY AND NEVER WAS.

No kettle restrictions

Free the kettle! All kitchen appliances’ lives matter!

Less EU X-factor

What is this?

Ditto with BGT

I really don’t get this.

New vocabulary

Mainly racist slurs, right?

Keep our UN seat

Until that in/out UN referendum, of course.

No EU human rights laws

Yeah, got a bit fed up with my human rights tbh.

Herbal remedy boost

At last, a chance to be treated with medicine that doesn’t work.

Others will follow [picture of dominos]

Hooray! The economic collapse of countries surrounding us upon whose trade and labour we rely, one by one!

Better English team

Ah, because we can replace them with more qualified players under an Australian-style points-based system, you mean?

High-powered hairdryers

An end to the miserable years of desperately trying to dry my hair by yawning on it.

She would’ve wanted it [picture of Margaret Thatcher]

Well, I’m convinced.

I'm a mole, innit.