London Public Pension Fund Eyes Private Equity

LONDON (Reuters) – The 3.2 billion pound ($5.08 billion) London Pension Fund Authority is looking for private equity and infrastructure investments as it releases some of the cash hoarded during the financial crisis, the CEO said.

“Cash allocation is higher than we would like at the moment,” said LPFA chief Michael Taylor.

At end-June LPFA’s assets were split into a 2.1 billion pound active fund mainly invested in global equity and a 1.1 billion pound sub-fund which adopts a more cautious approach and which is used to pay pensions.

Taylor wants the active fund to use some of its cash, worth 7 percent of its assets.

“We are looking for investment in private equity and infrastructure, but the problem is that there has been precious little distribution at the moment; not a lot of IPOs and little trade in that area,” he said.

At end-June the active fund had nine percent of its assets in private equity and five percent in infrastructure.

As part of the same cash redeployment, the LPFA has invested 20 million pounds in the Prudential (PRU.L) M&G UK Comapanies Financing fund, which will make loans to sound UK companies stymied by a lack of bank lending.

The scheme may invest a further 30 million pounds if M&G hits the 2 billion pounds target.

The fund has so far gathered 1.3 billion pounds and its total assets may rise to 1.6 billion pounds after its third closing. The fund has not yet made any loans, said M&G’s fixed income chief investment officer Simon Pilcher.

Like other UK pension schemes, the LPFA is seeking advice about the impact of rising life expectancy. Its consultant is Hyman Robertson’s longevity service unit, known as Club Vita.

“Our oldest pesnioner is 110. We had 38, at last count, who were over 100. The longevity issue is really critical for us,” he said.

The fund is not keen on longevity swaps, where trustees pay a bank or some other counterparty to take on some of the risk over a defined period. The deals effectively mean you are introducing counterparty risk while sharing longevity risk.

“I am not sure you can ever successfully pass on the longevity risk to other parties, because ultimately the tax payer is responsible for local government schemes.

“I can see the attraction in setting it up, but what happens 10, 15 years down the track? I would be a little bit more concerned about that,” he said.

UK pension schemes are likely to insure over 5 billion pounds of longevity liabilities in 2010, consultant Hewitt Associates has estimated.

(Reporting by Cecilia Valente, Editing by Jason Neely) ($1=.6301 Pound)