February 20, 2017 / 2:35 PM / 3 years ago

UK environment agency pension fund may raise infrastructure exposure - CIO

LONDON (Reuters) - Britain’s three billion pound Environment Agency Pension Fund (EAPF) is looking to raise its allocation to high-yielding infrastructure projects to 7 percent from 5 percent, its chief investment officer Mark Mansley said on Monday.

Mansley, who was speaking to Reuters on the sidelines of a conference, declined to give a specific timing for the possible adoption of the new target.

Governments are eager for long-term investors to put money into new infrastructure projects such as alternative energy, bridges or roads.

But investors, who generally only invest a small amount of their portfolios in these alternative assets, are often reluctant to take on “greenfield” schemes, which include construction risk.

However, the EAPF is starting to explore direct investments and the possibility of taking some construction risk, perhaps for onshore wind farms or solar power projects, which can be erected relatively quickly, Mansley added.

“Investing in greenfield projects can be quite a rewarding area, taking them through to completion, holding them for the next 25 years or selling them if the market is still over-rich,” he said. “The key thing is having good partners who know how to mitigate the construction risk.”

The fund, which has a strong focus on responsible and sustainable investment, currently invests mainly through pooled funds such as Copenhagen Infrastructure II K/S, which has made an investment in British biomass-fired power plant project Brite.

Mansley told the Stirling Infrastructure Partners conference in London that at one level infrastructure was becoming a crowded trade: “There are lots of people chasing lots of deals ... Prices are getting squeezed. As an investor you have to be careful about where you want to be.”

As a result, he said the fund was moving away slightly from some of its core infrastructure equity exposure, which was looking quite expensive.

Demand for infrastructure equity in developed markets has rapidly outstripped supply, prompting investors to bid up prices to get access to the choicest assets.

Mansley said he was a “slight sceptic on size” and it might pay for investors to look at smaller projects, where the EAPF had made a number of investments.

“The 1 billion pound projects are the popular ones,” said Mansley. “But in the hundreds of millions size, the queues are less long and the prices are a bit more attractive.”

Reporting by Claire Milhench; Editing by Gareth Jones

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