UK councils’ cap on LP investments to be doubled

The UK government will today unveil plans to unlock further investment into infrastructure by doubling the amount that local councils can allocate to limited partnerships from 15% of their pension fund capital under management to 30%.

As the UK continues to take steps to try to free up capital for infrastructure investment, an announcement expected today will reveal plans to raise the amount that local councils can invest in limited partnerships through their pension funds from 15 percent of assets under management to 30 percent.

Currently, there is around £150 billion (€187 billion; $240 billion) residing in local council pension funds. This means that, with the current cap set at 15 percent, around £22.5 billion is potentially available for investment in limited partnerships. By raising the cap to 30 percent, another £22.5 billion will be freed up – making £45 billion in total.

Limited partnerships are the vehicles through which local council pension funds make most of their investments in private equity, property and infrastructure. Because many of these funds have already invested up to the 15 percent limit, they have no scope to release money for further investment in infrastructure – which is what the government would like them to do.     

A consultation on the issue, which will effectively be launched today, is expected to run until the middle of December.

The National Association of Pension Funds (NAPF) welcomed the move. “We are pleased that the Government wants to increase or remove the limits that local authority pension funds can invest in infrastructure,” said NAPF chief executive Joanne Segars in a statement. “This has the potential to remove a key barrier that is preventing some local authority pension funds from investing in this important asset class.”

However, Segars cautioned: “Lifting this limit would remove one barrier, but there are wider issues that need to be addressed. The Government needs to undertake a comprehensive review of the local authority pension fund investment regulations to ensure that funds can act in the best interests of their members and council tax payers.”

The move is the latest of a number of initiatives designed to boost investment in UK infrastructure. In September, a £1 billion contract to supply trains for London’s Crossrail rail line became the first to benefit from the government’s £40 billion guarantees scheme, designed to “kick start critical infrastructure projects that may have stalled because of adverse credit conditions”.

In addition, the new Pensions Infrastructure Platform (PIP) – set up to invest in infrastructure on behalf of UK pensions – had collared six backers by mid-October, including the likes of BT Pension Scheme and Railways Pension Scheme. The planned £2 billion platform was understood to have raised around £600 million to £700 million by that point.