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Manchester and London show Birmingham clean pair of heels with ‘game changing’ £500m regeneration fund

Manchester and London show Birmingham clean pair of heels with ‘game changing’ £500m regeneration fund

🕔26.Jan 2015

Greater Manchester and London councils have signed a ground-breaking deal to allocate £500 million from their pension funds for new infrastructure including HS2, house and road building projects.

The scheme is similar to a proposal first put forward four years ago by Birmingham Labour councillor John Clancy, although West Midlands’ councils have shown no interest in pursuing the idea.

Councillor Clancy set out his scheme for tapping into the considerable wealth of local government pension funds as early as 2010 when compiling a manifesto to support an unsuccessful challenge to become leader of Birmingham city council.

The proposal was last year set out in detail in his book, The Secret Wealth Garden, where Cllr Clancy argues that councils should use some of the cash in their pension pots to regenerate the economy. He estimates that £220 billion “sitting festering in pension funds” could be used across the country to kick-start regeneration schemes.

By investing in housing, office development and HS2, the pension funds could expect to enjoy a substantial long-term return on their money in terms of rental income and capital appreciation, probably outstripping the low-level returns usually associated with public sector pension funds.

The Greater Manchester Pension Fund (GMPF) and the London Pensions Fund Authority (LPFA) have joint assets of £21 billion. The West Midlands Local Government Pension Scheme, one of the largest in the country, has assets totalling £10 billion.

The GMPF and the LPFA tie-up could fund house and road building, including part of the regeneration linked to development of the proposed HS2 high-speed rail lines between London, Birmingham, Leeds and Manchester.

The move was welcomed by the mayor of London Boris Johnson: “This brings together sizeable pension assets in a way that will enable these combined public funds to carry collective clout.”

Councillor Kieran Quinn, chair of GMPF, said a joint investment team is looking into investment opportunities. The money is expected to be pumped into suitable projects over the next three to four years.

Cllr Quinn, who is the leader of Tameside Council, said other local authorities could collaborate to create a funding source of scale for UK pension funds. He pointed out that his council had relied in the past on foreign private equity to fund building projects, but added: “We shouldn’t have to go external”.

Cllr Clancy said it was “embarrassing” that Greater Manchester and London had pressed ahead with pension fund investment for regeneration while Birmingham and the West Midlands had not.

He added: “I have said repeatedly that rewiring massive public sector pension fund wealth into the real economy is realistic and efficient. This is especially so when pumped into great regional economies.

“It allows massive business and infrastructure investment without a taxpayer hit. It is also good for the funds themselves.

“Progressive, forward-thinking people are putting this into action now. Even Boris has jumped aboard.

“Yet again Birmingham is left behind by others who are prepared to see a different way of doing things. Manchester has grasped this opportunity while Birmingham stands and stares, seemingly unable to do things differently.”

It’s not the first time the Greater Manchester Pension Fund has used assets to pay for regeneration schemes. GMPF also invested in Manchester Airport and an office block in Manchester city centre.

The GMPF-LPFA tie-up will see the pooled pension cash used for a broader range of infrastructure developments throughout the UK.

Susan Martin, chief executive of the LPFA told the Financial Times that “nothing was off the table” in terms of possible investments, expected to be made over the next three to four years.

“This could include direct, non-direct and equity-based investments or debt,” Ms Martin said. “We are excited as this could be a game-changer.

“The fund may invest in biomass or renewables. The investment decisions will be hard-nosed and based on returns for our members.”

Ms Martin said creation of the infrastructure investment platform would help LPFA close its projected deficit while also investing in local projects.

She added: “To meet our pensions liabilities we need a balanced portfolio that includes assets with a long-term profile and by focusing on British infrastructure we are investing in an area that so badly needs it.”

The tie-up is the latest for the LPFA, which has recently struck deals with other local authorities to reduce investment fees and create economies of scale.

Last year, the LPFA teamed up with the Lancashire County Pension Fund to create a £10 billion commonly managed, asset pool in an attempt to reduce costs.

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