While the UK government has called on pension funds to support the UK’s “build back better” agenda by supporting green infrastructure, many have not been able to make the level of investment they wish.
Excessive demand and insufficient supply are earmarked as blame factors.
Back in August, prime minister Boris Johnson and HM Treasury published a letter to the pension fund sector, which suggested that UK institutional investors were “under-represented in owning UK assets” and went on to urge pension funds to invest in long-term assets such as green infrastructure and green bonds. Doing so, it argued, would help stimulate the UK’s recovery from the Covid-19 pandemic.
However, despite the appetite to invest, the funds are being pushed out from infrastructure investment opportunities by the current conditions, industry statistics say.
Experts have indicated that the lack of available assets and high competition for investment are the main drivers of the issue. Indeed, commercial fund managers and larger funds, such as sovereign wealth funds, have significant levels of capital and are often able to pay more for the same assets and are willing to accept lower returns.
While the UK government might not be able to offer a resolution to the demand problem, industry figures suggest that it could address the wider issue through clarity of policy and stimulation of supply.
Morten Nilsson, chief executive of the BT Pension Scheme worth around £57.7 billion, explained that the government could use the UK Infrastructure Bank to do this.
The UK Infrastructure Bank, launched in June 2021, has a budget of £22 billion comprised of £12 billion of equity and debt capital and the power to issue £10 billion of government guarantees. It was established to support infrastructure that will drive local economic growth and help address climate change through loans, credit enhancement and equity investments.
Nilsson suggested that the bank could look to adjust the risk profile of UK green infrastructure investments to make them more appealing to cash flow-negative defined benefit schemes, such as BT’s.
He said: “Our cash-generation needs are quite high, but that doesn’t mean we can’t take these assets. It just means that we would be very interested, for example, in the UK Infrastructure Bank taking some of the first loss risk out of those opportunities. We would be very interested in debt opportunities coming out of this too.”
For those UK investors considering such opportunities, often financial advice or portfolio management experts such as wealth management services are an initial port of call. Hartey Wealth Management, a financial advice firm based in Chester, London and other parts of the UK, are particularly well placed to help investors select assets that suit their ethics, such as green investment opportunities.
Managing director Tristan Hartey explains: “Maximising wealth and protecting hard-earned assets are our key focus here at Hartey Wealth Management. We provide expert advice in all areas of financial planning, including pensions, savings, investments, life insurance and estate planning. Our clients can rest assured that they are being looked after in every possible area of wealth management.”
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