A UK sovereign wealth fund?

  • 5 December 2012
  • From the section Business
  • comments

One of the reasons infrastructure investment by British pension funds is relatively low, compared with (for example) infrastructure investment by Canadian pension funds, is that the UK's pension fund industry is fragmented: there aren't that many huge pension funds with the resources and appetite to make big long-term investments in new roads, or railways or airports.

And to tell you what you already know, the UK doesn't have a huge sovereign wealth fund, of the sort they have in Norway, much of the Middle East and Asia, keen and able to make massive long-term investments in the gubbins that underpin a nation's ability to grow and create wealth.

The Treasury tried to correct this flaw by encouraging the National Association of Pension Funds to create a so-called Pensions Infrastructure Platform (PIP), which brings together disparate pension funds with a collective interest in putting debt and equity into new British infrastructure.

According to those involved in the PIP, progress in herding the pension funds has been a bit better than might have been expected. It has eight founder members, which will collectively provide about £1bn, and a further £1bn will be raised from other funds next year - with the formal launch scheduled for the first half of 2013.

My understanding however is that Downing Street and the Treasury are engaged on a more ambitious project, to investigate whether it might be possible to create what might be seen as a British sovereign wealth fund.

I have learned that officials are looking at the assorted pension schemes for public sector employees that are funded (to use the jargon), and actually own shares, bonds and other investments, to see whether they could be merged in some way.

For example, in England and Wales, there are 89 local government pension schemes, which collectively owned £148bn of assets, as of April 2012 (according to data supplied by the pensions consultant John Ralfe).

If these funds acted collectively, they would have enormous investing power - and would be quite big enough to make significant investments in infrastructure.

So for ministers, trying to find a way of pooling this £148bn would seem eminently sensible.

And maybe other public sector pension assets could be put into the pot, such as MPs' £426m of pension assets, or the £18bn of miners' pension assets guaranteed by the government, or even the £28.5bn of Royal Mail pension assets that the Treasury acquired this year.

However, there is quite a big obstacle to creating a public sector superfund, which is that each of the separate schemes has its own trust deed and trustees - and getting them to agree to merge would not be easy.

So I don't know whether the chancellor has enough confidence that a big fund can be forged to mention it in today's Autumn Statement.

But the underlying theme of what George Osborne will say today is that it is becoming more and more urgent to unlock resources that could stimulate growth.