Rothsay to reduce investments in UK infrastructure

Rothesay Life's chief has warned that the Goldman Sachs-backed pensions group is set to reduce investments in UK infrastructure, complaining authorities made "noise and puff" about a flagship funding scheme but failed to fully deliver on it.

The pensions insurer, which manages almost £13bn worth of assets on behalf of retirement plans for staff at British Airways, General Motors and Philips, among others, ploughed £2bn into infrastructure projects last year.

But Addy Loudiadis, chief executive, said it was likely to cut back this year because a government scheme to support as much as £40bn worth of investments had been so disappointing.

"Unfortunately that pipeline hasn't materialised to the noise and puff that was rumoured," she said. "We haven't seen as much infrastructure as we would like."

The Infrastructure UK scheme was launched in 2012 to encourage lending to projects that had stalled during the financial crisis.

Under the terms, the Treasury guarantees that lenders will be repaid in full and on time - irrespective of the project's performance. It transfers construction risk to the government, and ultimately the taxpayer, in return for a fee.

Rothesay has been one of the programme's most prominent backers.

The group was a lead investor in the first publicly-issued bond backed by guarantee, which is funding the Mersey Gateway, a six-lane toll bridge being constructed near Liverpool.

Rothesay was also a lead investor in a bond issued by Transport for London, which is funding the flagship Crossrail train link and the Northern Line tube extension to Battersea.

A further 39 projects - including up to £17bn of funding for the Hinkley Point C nuclear power plant in Somerset - have been identified as eligible for the guarantee programme.

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Richard Threlfall, head of infrastructure at consultancy firm KPMG, said the number and value of projects backed by guarantees had fallen significantly short of that expected when the scheme was first launched.

"As a consequence we have failed to unlock the expected flow of pension fund money into infrastructure in the UK," he said.

The National Audit Office issued a highly critical report about the programme last year. It said it was the most "lender friendly" scheme it had identified within the EU and urged the Treasury to consider whether the guarantees were "genuinely needed".

Once the Treasury has issued a guarantee it cannot withdraw it or change the fee if project risk or market prices change.

Yet Ms Loudiadis said the guarantees were crucial for Rothesay as the nature of its liabilities means it seeks to invest in conservative assets. A third of its investment portfolio is allocated to UK sovereign debt.

"We feel quite happy and secure in government-guaranteed gilts. For us to stray away from that promise, the asset would have to come with a lot of collateral or security."

Asked why the state should be providing a backstop to private capital, she added: "These are projects that are big enough [and] are very good for the country and employment."

"The best way to inflate an economy is through infrastructure because it does create jobs and assets."

A Treasury spokesperson said: "Projects with a value of approximately £4bn have already been approved under the UK Guarantee Scheme. A further 39 projects have been pre-qualified, with a capital value of approximately £34bn.

"According to the National Infrastructure Plan 2014, there will be approximately £79bn of project financing opportunities over the next five years. We are committed to infrastructure investment, and the scheme will run until late 2016."

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