One of our airports is missing
PE reporting and pension fund ownership of London City Airport
It is not news that the government a) wants to get economic growth back up b) sees investment in UK infrastructure as part of this objective c) sees pension funds playing a major role in this and d) is planning to reform (consolidate) pension funds with the hope this will help to change their investment strategies in order to push this all along.
I’ll leave for another day the question of whether this is likely to be successful or not, except to say that I think the government will have to take a hands-on approach if it wants to avoid (amongst other things) this either not working (funds don’t change their investment strategy) or contributing to pushing up prices as more capital chases the same assets.
One of the things to note is that Canadian pension funds are often held up as an example of what the UK should be aiming for. In particular, very large pension funds with the investment capacity in-house to put capital directly into infrastructure, or other areas that might boost the domestic economy.
‘Infrastructure’ as an investable thing is a porous category. It can encompass listed companies, property, debt and so on. But when thinking about institutional investment very often it involves unlisted assets, which pension funds might invest in directly, if they are large enough, or via an asset manager if not. This type of ‘infrastructure’ investment is really, then, a subset of private equity, it just carves out certain types of assets to invest in.
Because of the way some of them are owned, infrastructure assets in which pension funds invest can fall under the Walker Guidelines for reporting by PE portfolio companies and their owners, which are the responsibility of the Private Equity Reporting Group (PERG). The guidelines came out of the Walker Review which in turn was a response to concerns about the lack of transparency in relation to PE-owned companies. Especially when public companies are taken private the level of public information on them can drop considerably.
PERG reviews PE portfolio companies that are within scope of the guidelines and produces an annual report. However, the guidelines are voluntary and some companies simply don’t comply. What surprised me when I looked at this recently is that London City Airport is one such example.
Whilst I haven’t used it for a couple of years, this strikes me as a bit of infrastructure that really could use some investment. Although lots of people like City Airport, because you can get to it and and through security very quickly, the gates in particular still have the feeling of a being a few portacabins joined together. There always seemed to be missing roof tiles when I used it in the past. The airport was sold by Global Infrastructure Partners (recently acquired by BlackRock) to its current owners in 2016.
But, currently, London City Airport does not comply with any of the elements of the Walker Guidelines. Perhaps more surprising is that this is a long-standing issue and that three of the joint owners of the airport are those large Canadian pension fund investors making up the so-called Maple Eight. (The other is the infrastructure arm of the Kuwaiti sovereign wealth fund.)
Here’s an excerpt from the 16th PERG report, issued this January:
Eleven portfolio companies have not complied with any of the three components of the Guidelines this year (enhanced annual report disclosures and preparation of a mid-year update, the publications of these reports, and the provision of data to EY) …. London City Airport (owned by OMERS Infrastructure, Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Wren House Infrastructure Management) – the company continues to not comply, with no single owner having a controlling stake in the company.
But, as noted, this is not new.
PERG report Feb 2023:
Eight portfolio companies have not complied with any of the three components of the Guidelines this year (enhanced annual report disclosures and preparation of a mid-year update, the publications of these reports, and the provision of data to EY)… London City Airport (owned by OMERS Infrastructure, Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Wren House Infrastructure Management) – the company continues to not comply, with no single owner having a controlling stake in the company.
PERG report December 2021:
The following companies have not engaged with PERG again this year, hence their annual reports have not been reviewed and are noted as being non-compliant with the Guidelines. The owners are non-BVCA members. PureGym (Leonard Green & Partners), Punch Taverns (Patron Capital), and n London City Airport (OMERS Infrastructure, Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Wren House Infrastructure Management)…. London City Airport (owned by OMERS Infrastructure, Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Wren House Infrastructure Management) – the company continues to not comply, with no single owner having a controlling stake in the company.
PERG report December 2019:
Based on our detailed review of the sample and our knowledge of the full population, four portfolio companies have not complied in full with any of the three components of the Guidelines (enhanced annual report disclosures and preparation of a mid-year update; the publication of these reports; and the provision of data to EY). These companies are backed by non-BVCA members and were Advanced, London City Airport, Punch Taverns and PureGym. The PERG is disappointed that these companies are not complying with the Guidelines and will continue to engage with their owners…. London City Airport (owned by OMERS Infrastructure, Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Wren House Infrastructure Management) – the company continues to not comply, with no single owner having a controlling stake in the company.
PERG report December 2018:
Based on our detailed review of the sample and our knowledge of the full population, four portfolio companies have not complied in full with any of the three components of the Guidelines (enhanced annual report disclosures and preparation of a mid-year update; the publication of these reports; and the provision of data to EY). These companies were Advanced, London City Airport, Punch Taverns and Pure Gym. The PERG is recommending that their owners comply in future years…. London City Airport (owned by OMERS Infrastructure, Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Wren House Infrastructure Management) – the company continues to not comply with no single owner having a controlling stake in the company.
PERG report December 2017:
Due to a change in ownership and no one owner having a controlling stake in the company, London City Airport (backed by Borealis Infrastructure, Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Wren House Infrastructure Management) have not complied with the Guidelines this year. The PERG will continue to work with the owners to encourage compliance next year.
It’s difficult to get a sense of the extent to which PERG is concerned by the lack of reporting under the guidelines. In 2019 it was “disappointed” by non-compliance, but latterly it just seems to note it. The fact that none of the three owners has a controlling stake is referenced, but surely they could collectively agree to comply? For now I’m not sure that many non-nerds pay attention to this type of reporting so there’s no real pressure to fall into line.
Looking ahead, though, it does strike me that if the government does progress with its pension plans, and domestic funds end up owning more assets like London City Airport, it would not be acceptable for infrastructure owners to simply not comply with reporting expectations. That should certainly be the expectation. And if the UK government is continuing to meet with Canadian funds in the meantime they might want to nudge them on this point.