Proposals for local government pension schemes to club together and invest in private finance initiative (PFI) schemes have been discussed by the Local Government Association.
Under the plans would see council pension funds pour both debt and/or equity into PFI schools programmes to produce “a more liquid, efficient and competitive PFI investment market”.
Increased competition in the PFI funding market could have a beneficial impact on reducing PFI borrowing costs, the LGA said.
“It is recommended that officers be authorised to explore further with Partnerships for Schools, Partnerships UK, local authority pension funds and fund managers what scope exists for the creation of professionally managed funds designed to provide equity and/or debt for local authority PFI schemes,” a report to the association’s executive last week read.
Officials did however concede there were potential conflicts of interest between councils as users of PFI and, via their pension funds, investors seeking to maximise their returns.
New Local Government Network director Chris Leslie backed the proposals. “Historically, individual pension funds have been too small to invest in Building Schools for the Future projects but collectively they would be able to. It is a safe, legitimate opportunity with a good rate of return.
“Over time there is no reason why infrastructure investment should only be for pension funds money - it could be for pooled council reserves as well,” he said.
Mr Leslie also warned that local government needed to take a more proactive approach to how it managed its substantial cash reserves.
“An incoming government may well see the £30bn held by councils as low hanging fruit to get their hands on. Ultimately it is taxpayers’ money but councils should steer where it is invested.”
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