“We are in the middle of the transition phase at the moment,” says Mike Weston, chief executive of the Pensions Infrastructure Platform (PIP), “between the buy phase and the build phase.”
Set up with the strong backing of the coalition government as the economic storm continued to rage, the PIP was at one time seen as the way to get significant amounts of pension fund money to fill the gaping hole left by the banking industry as it pulled back from the infrastructure sector.
But as the banking community recovered faster than expected – and austerity policies resulted in fewer new infrastructure projects coming through the pipeline, both in the UK and throughout Europe – the need for pension fund cash receded. And with the PIP taking longer than some had hoped to get up and running, the organisation faded into the background.
Then in September last year, the PIP returned to people’s consciousness when Weston was appointed its first chief executive. He then drove the organisation’s “buy phase”, as he describes it, making the first investment for the funds through its PPP Equity PIP Limited Partnership with Dalmore Capital.
“Having achieved the first investments for the pension fund investors and having translated the PIP concept into reality, [the founding investors] then stood back and thought ‘what do we do next?’” he explains.
“The first step in the buy phase was the PPP equity fund with Dalmore Capital and the first step in the build phase was my appointment in September last year. Since then we have continued with the solar PV fund we launched with Aviva Investors in February this year, which got to a first close in June.”
The PIP has also been active in supporting one of the UK’s largest projects of recent years: the Thames Tideway Tunnel, or ‘supersewer’ running under London. Dalmore is one of the members of the winning consortium for the deal, and Weston explains that the PIP has been helping to raise cash from the pension fund community for the scheme.
“When the consortiums formed about 18 months ago, PIP wasn’t in a position to be a member of the consortium, but Dalmore was,” he says. “We have worked with Dalmore to get pension funds invested in the Thames Tideway Tunnel project.”
Having invested in a number of operational projects, critics have bemoaned the PIP’s failure to invest more in primary deals – but its involvement in the Thames Tideway deal perhaps indicates that this is changing.
However, Weston is uncomfortable with creating a clear distinction between primary and secondary projects.
“I think the distinction between greenfield/ brownfield, primary/secondary is not particularly helpful any more,” he begins. “A project like the Thames Tideway Tunnel has a huge construction element, so typically would be viewed as greenfield. But because of the way construction risk is mitigated by the government’s guarantee, the risk has reduced to a level that arguably would be comparable to an operating infrastructure asset.
“So I think those definitions, which have almost become acceptable, are a bit historic now.”
Concepts such as the UK Guarantees programme have been welcomed by Weston and he also believes that the long list of projects contained in the National Infrastructure Plan is useful to the PIP, because it allows investors to put money towards the organisation safe in the knowledge that there will be schemes for it to bid on.
“There are some massive projects out there, all of which will typically be considered greenfield, but if they are structured in a way that matches the risks to the revenues, then potentially we could back them,” he says.
Much of Weston’s future plans, however, will largely depend on the PIP obtaining authorisation from the Financial Conduct Authority (FCA) to directly own assets and manage money on behalf of pension funds.
“That approval process is underway,” he says. “Hopefully the process will be completed towards the end of the year. This will allow us to launch the PIP multi-strategy fund, which will be the first internally managed PIP fund.”
This is why Weston refers to the organisation as currently being in a transition phase “between using external managers to source assets, and being able to buy and manage assets directly as PIP on behalf of our pension scheme investors”.
Too good to miss
That’s not to say Weston is sitting back with nothing to do. In August, the organisation brought in two more staff, appointing former Lloyds banker Ed Wilson as an investment director and CCLA’s former head of assurance, Paula Burgess, as chief operating officer.
Perhaps more than ever during this transition phase, Weston is finding a new set of challenges arriving on his desk almost daily. “You know where you want to go, but there are so many external developments that you just have to take these on board and say ‘how does that change things now?’,” he says.
“I’m very practical and ‘real world’ rather than theoretical and academic,” he adds. “I do like solving problems and making things happen.”
Having studied natural sciences at Cambridge, Weston went into asset management and soon found himself running equity portfolios for around 20 years. “Then in 2009 I hopped over the fence to become chief investment officer of the Daily Mail’s pension scheme, which has an asset portfolio of about £2bn.”
It was here that he became interested in infrastructure, he explains. “We were looking for long-term, inflation-linked sources of cashflow for that scheme because it was gradually maturing and would need to move into more liability matching assets as time went on. However, the pricing and value of index-linked gilts didn’t look particularly great, so we looked for alternatives.”
He was involved as a National Association of Pension Funds (NAPF) member in the initial discussions around the PIP, but at the time the Daily Mail & General Trust (DMGT) pension scheme was just a little too small to be a founding investor.
“Even with £2bn of assets, the DMGT schemes were really too small to meaningfully invest directly in infrastructure projects, and most UK pension schemes have the same problem.”
Having spent five years at the Daily Mail, the opportunity arose at the PIP and Weston was quick to grab it. “All the building blocks were there, PIP just required the dedicated resource to drive it forward; and when that proposition came up it was too good not to go for,” he explains.
It certainly presented a challenge. In November 2011, Infrastructure UK chief executive Geoffrey Spence spoke of a “collective action vehicle” that would employ a “significant” number of people, with money starting to flow within months of it being established – at that time expected in the early years of 2012.
Things have not quite panned out that way, but Weston remains bullish on the organisation’s development, which is why he describes the progress that the PIP has made over the past 12 months as a career highlight.
“Developing something that is changing the landscape of infrastructure investment in the UK and that will benefit the wider UK pension scheme environment has been a great challenge and has to be a highlight,” he says.
“I’m really pleased with what we’ve achieved over the past 12 months,” he continues. “We’ve moved forward in all the areas I had hoped to move forward on.”
Among the successes, he lists the fact that the Dalmore investment has almost doubled in size since he joined, and that the PIP has developed more investment opportunities, such as the solar fund with Aviva.
Then there’s the mammoth eff ort to improve the organisation’s image within the industry. Having been created in a fanfare of promises and plenty of government support, that official backing has melted away in recent years, with officials often describing the PIP as just one of a number of initiatives it is keen to see develop. As initial excitement faded, the perception of the PIP among the infrastructure community has had to be reshaped.
“I would hope more people know more about it than they did a year ago,” says Weston. “There’s more clarity about who we are and what we’re trying to achieve.”
So what’s to come from the next 12 months of Weston’s leadership? “We would hope to be FCA regulated, to have launched the PIP Multi-Strategy Fund, to have more people than we do now and to have made our first direct investment on behalf of pension funds.”
That is a large to-do list. “Unfortunately, I can’t predict exactly when any of this will happen because most are outside our control,” admits Weston. “All we can do is push forward as quickly as possible in the areas we do control.”