UK Cities in £500M Infrastructure Tie-Up

Local authority pension funds for Manchester and London are to jointly invest up to £500 million in infrastructure.

The £13.3 billion ($20.2 billion) Greater Manchester Pension Fund (GMPF) and the £4.9 billion London Pension Fund Authority (LPFA) are to invest £250 million each in a special purpose vehicle. The pensions will target UK infrastructure, primarily assets local to their home cities.

LPFA CEO Susan Martin told CIO the mandate for the infrastructure allocation was “very broad”, and could include transport, residential, commercial, and utilities assets. The pensions would also consider both equity and debt investments, she added.

Investments are already being sized up by Manchester and London’s in-house teams while the final legal hurdles are being negotiated, Martin said. The SPV will be run by the two pensions, rather than an external manager.

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“In the UK we are only beginning to realise the potential for public pension funds to support the development of infrastructure projects,” added Councillor Kieran Quinn, chair of GMPF, “at the same time as delivering sustainable, high-quality returns to scheme members and employers.”

The deal is the latest collaboration between UK public pensions, and follows the announcement in December of a tie-up between the LPFA and Lancashire pensions, which could see the creation of a £10 billion in-house asset manager for the two funds.

In addition, two boroughs in the west of London have outsourced their pension administration to Surrey County Council. The pension funds for Kensington & Chelsea and Hammersmith & Fulham have exited a contract with Capita, according to the Local Government Chronicle. Surrey already administers the Borough of Westminster’s pension fund.

However, co-operation between pension funds in the UK is far from straightforward: A proposed tie-up between the pensions for Berkshire, Buckinghamshire, and Oxfordshire has collapsed, it emerged this week, after months of negotiations.

The three pensions initially planned to pool their assets—more than £5 billion in total—in order to reduce costs and negotiate more favourable investment deals.

A statement from Oxfordshire County Council claimed the deal—internally dubbed “Project BOB”—was abandoned due to uncertainty regarding a government proposal that could force public pensions to invest only in passive funds.

However, a Local Government Chronicle report quoted Berkshire Pension Fund Manager Nick Greenwood claiming the pension collaboration plans had been hindered by separate negotiations between Oxfordshire, Buckinghamshire, and Northamptonshire councils to co-operate on other services as part of a “Tri-County Alliance”.

A spokesperson for Buckinghamshire County Council denied the Tri-County Alliance talks had any bearing on Project BOB.

For any asset owner considering a switch to alternative fund management, salary benchmarking site www.emolument.com has issued a guide to how you might expect to be paid, depending on the sector you choose.

Alts salary (Alternative managers’ base salaries. Source emolument.com)There is a distinct difference between how UK staff at hedge funds and private equity companies are paid, the website’s data shows. The website used data from 600 staff who volunteered information.

Based on the research, private equity staffers can expect the best steadily increasing incomes as they progress up the slippery pole of seniority, with matching gradually improving bonuses.

Hedge fund workers, on the other hand, do not earn as much as their private equity peers on a base salary level after reaching the rank of vice-president, although their salaries do rise in line with rank.

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However, once bonuses are taken into account, the story changes.

Hedge fund bonuses outstrip those received by private equity peers at three out of the five levels of seniority ranked by www.emolument.com. At managing director level, hedge fund staffers walk away with a bonus of £340,000, whereas private equity top dogs take £250,000 a year.

This produces an overall package of £505,000 for hedge fund supremos compared with £460,000 for private equity heads. Alts bonus (Alternatives managers’ bonuses. Source: emolument.com)

Thomas Drewry, CEO at emolument.com, said that as similar skill sets were required in both environments, potential newcomers to alternatives were confronted with a career choice.

“At least they now have a better idea of what it entails in terms of compensation throughout their career: more stable revenue profiles from private equity firms but higher absolute returns from hedge funds,” said Drewry.