Macquarie has raised £200m from a corporate pension fund to kickstart a new UK inflation linked infrastructure debt fund aimed at helping pension schemes meet their long-term liabilities.
UK pension funds have not yet widely invested in infrastructure debt but Macquarie predicts a significant increase in activity as regulatory changes have reduced the once dominant role of commercial banks in the market.
James Wilson, chief executive of Macquarie’s infrastructure debt investment solutions platform, said pension schemes and infrastructure borrowers were “natural partners” who could share significant benefits by working together in a more direct and efficient way.
“We expect pension investment into infrastructure debt to increase significantly over the coming year. This trend will be supported by institutional fund managers that have started investing on behalf of pension funds,” said Mr Wilson.
Pension funds, he added, could see improvements in their funding positions and achieve higher yields by switching from gilts or corporate bonds into infrastructure debt, which he said generates revenue streams that are relatively well insulated from the normal business cycle.
Macquarie aims to raise at least double that initial allocation made by an unnamed UK corporate pension fund by tapping into a £4bn annual pipeline of inflation linked debt issued by infrastructure providers, such as water and electricity utilities and renewable energy suppliers.
Around £170bn has been raised since 2004 by 784 UK infrastructure products.
The investable pool of infrastructure debt could expand further due to refinancing requirements for PFI (private finance initiative) projects, demand for student accommodation and from housing associations where upgrades in social rents have been linked to increases in inflation.
The new fund aims to deliver annual average returns of 200 to 250 basis points above index linked gilts. The fund, which is a closed end vehicle, is expected to have a life of 30 years and has a £10m investment minimum. Fees vary by size of commitment.