Elite pension funds back infrastructure investment vehicle

LONDON (Reuters) - A government plan to kick-start the economy by drawing billions of pounds of pension fund money into roads and rail has moved closer to reality after several large pension schemes formally signalled interest.

The BAE Systems Pension Fund, BT Pension Scheme, Railways Pension Scheme, Strathclyde Pension Fund and West Midlands Pension Fund have agreed to become Founding Investors in the Pensions Infrastructure Platform (PIP), a vehicle by which funds can back projects that meet their investment criteria.

With these members in place, detailed development of PIP, including its asset preferences and fee structures, can now begin, the National Association of Pension Funds said on Thursday.

It also means politicians can start to identify the under-invested projects that will appeal to these cash-rich funds.

"The PIP provides an excellent opportunity to invest in core UK infrastructure alongside like-minded UK pension schemes," said Frank Naylor, Head of Strategy, BTPS Management.

"We look forward to a widening of the opportunities for UK pension schemes to invest in infrastructure assets which are structured to provide the right characteristics."

PIP, which is open to all pension funds, aims to meet their demand for inflation-linked, long-term investment.

With a target size of 2 billion pounds ($3.2 billion), the vehicle will target infrastructure projects free of construction risk. The fund will seek cash returns in a range of 2-5 percent above the retail prices index (RPI) and was expected to launch in the first half of 2013.

After finalising details, gaining regulatory approval and selecting a manager to run the platform, the founding members have committed to provide seed investment capital to support the first batch of projects.

Pension Protection Fund, the government-backed agency that supports underfunded pension schemes or covers the pension liabilities of UK companies which have gone bust, has also signed up to become a founding member of PIP.

"Since we started this project, we have found that people have been genuinely supportive of the idea that pension funds and infrastructure investment fit well together," PPF chief executive Alan Rubenstein said.

(Reporting by Sinead Cruise; Editing by David Cowell)