Watch out, Canadian pension funds—your UK peers have you in their sights.

For years the 89 local government pension schemes (LGPS) in England and Wales have been forced to sit on the sidelines of their own infrastructure market, watching as behemoth institutions from Canada, Australia, and the Middle East have gradually gobbled up quality assets.

But change is afoot.

UK Chancellor George Osborne’s intention to pool the LGPS funds from 89 into six has been well documented. Last week, however, he added a new element to his vision: a single national infrastructure investment platform for LGPS funds.

“The Canadian and Australian pension funds have been looking to invest in infrastructure for a lot longer than UK schemes.”Currently, UK public sector funds invest less than £2 billion ($2.9 billion) in infrastructure assets, according to the “Project Pool” report published last year by a consortium of 23 LGPS members. On the other hand, the Ontario Teachers’ Pension Plan (OTPP) last month led a group to buy London’s City Airport for roughly £2 billion. There is a long way to go to get from one level to the other.

Existing infrastructure investors in the UK know this. The Pensions Infrastructure Platform (PIP)—a specialist manager owned by the pension funds that founded it—has just seeded its first in-house infrastructure fund five years after it was first established. With £1 billion across three products, it has yet to bulk up sufficiently to challenge foreign investors’ dominance.

“The Canadian and Australian pension funds have been looking to invest in infrastructure for a lot longer than UK schemes,” PIP CEO Mike Weston told BBC Radio 4’s Today program last week. “They’ve developed that expertise and they’re more comfortable with the risks that they’re taking when they buy these long-term assets.”

What does it take to become a globally competitive infrastructure investor? According to Osborne’s plan, set out in his annual budget report (albeit without a great deal of detail), it is a “national local government infrastructure investment platform.” He wants this in place by 2018, along with the multi-asset pools currently being constructed by the LGPS.

However, some doubt that Osborne’s ambitious timescale is realistic.

“There are two huge challenges: one is how do we collaborate, and the other is how do we compete?” said Andrien Meyers, former head of treasury and pensions at the London Borough of Lambeth.

“Most LGPS funds don’t have big enough teams to compete,” Meyers continued. “By collaborating we can grow in terms of resources, but that’s not going to happen overnight; we will probably have to recruit as well. I think it can be fulfilled in the next four or five years, but I can’t see it happening earlier.”

Recruitment will be vital to the success of the pools, infrastructure or otherwise. While some LGPS funds already have good in-house teams, the majority do not. In reality, many are run by two or three staff members with additional responsibilities for accounting or treasury management and very little investment experience.

“There are two huge challenges: one is how do we collaborate, and the other is how do we compete?”OTPP has 16 vice presidents and portfolio managers in its infrastructure and natural resources team alone, according to its website—any infrastructure pool will need to spend money to recruit this kind of talent. Specialist investors required will not come cheap either, and high wages are almost guaranteed to come under scrutiny from the UK press at a time when Chancellor Osborne is overseeing massive cuts to public spending.

“Across the LGPS there are many men and women doing many roles—all doing well,” argued Paul Traynor, a managing director at BNY Mellon overseeing pension and insurance clients. “If you bring them into the pools and allow them to specialize, you can inject some new blood. They will be able to grow that expertise.”

According to the PIP’s Weston, “there is no reason that UK pensions can’t develop that expertise.” Indeed, he claimed UK investors were “catching up” with their overseas counterparts: “There’s no reason why we shouldn’t be in a similar position in years to come.”

“There are Canadians, Australians, Middle East funds, Europeans, and insurers all looking for real assets in this country,” Traynor added. “The LGPS would definitely have to have specific skills to deal with construction, reputation, and political risks.”

Then there is the issue of asset suitability. Pension funds generally want low-risk, steady returns from their assets, and are generally unwilling to take on too much construction risk. There is also the question of investing in local projects versus national projects. As a result the government will likely have to compromise on what it wants to sell to UK investors, and what UK investors want to buy.

“At a local level the London funds want investment within their boroughs, while the government wants national-level investment,” Meyers explained. “Do the LGPS funds invest in high-speed rail or social housing? There’s a big difference between the national and local policy agendas.”

The “Project Pool” report estimated that a single LGPS infrastructure platform could raise between £8 billion and £13 billion, if the average allocation to the asset class rises to 5% from its current 1%. With that bulk, the UK’s public sector pensions would find it far easier to get a seat at their country’s own infrastructure table.

When it comes to infrastructure, UK public pensions know what they want, and why they want it. The ‘how’ is the tricky part.

Related:Questions Raised Over UK Public Pension Reform; London United; Why Infrastructure Investors Are Losing Their Appetites