(Bloomberg) -- One of the UK’s largest pension funds has said it may consider investing in Thames Water if the stricken utility is restructured and put up for sale.

Mark Fawcett, chief executive of Nest Invest, the investment arm of National Employment Savings Trust, said that although there are no current plans to take a stake in Thames “it is potentially interesting to our infrastructure managers.”

The comments are significant because no other investor has publicly expressed any interest in the UK’s largest water company, with 16 million customers in London and surrounding region. A series of sewage dumping scandals and demands for a 40% increase in household bills has made the business politically toxic. 

Analysts expect the company, which has around £16 billion ($20.3 billion) of debt, to be restructured before it is either sold, broken-up, mutualised or nationalized. A decision will be taken by the next government, expected to be the Labour Party which is far ahead in opinion polls three weeks before the July 4 general election .

Thames top shareholder, a unit of the Ontario Municipal Employees Retirement System, has written off its entire equity holding. The shareholders as a group have defaulted on the debt and declared the business “uninvestible.” Thames is now in the hands of its creditors. Two years ago, it was valued at about £5 billion.

Speaking to Bloomberg, Fawcett said Nest, an arms-length state corporation that is accountable to government through the Department for Work and Pensions, plans to invest more in UK infrastructure and property. A fifth of its assets are in the UK, including a small stake in Anglian Water and big investments in renewables.

Fawcett likes UK infrastructure because “contracts are often inflation linked,” providing protection for members, and because it creates a positive feedback loop through economic growth. 

“It’s a win-win by generating good returns and supporting the UK economy, which is good for our members,” he said. “By buying UK corporate bonds we are helping companies finance future growth. A vibrant economic environment is good for members, their wages, their pension contributions.”

Nest, the biggest UK pension fund by membership, was set up in 2010 as the default vehicle for people automatically enrolled into workplace pensions following earlier government reforms. It describes itself as “generally independent of government in its day-to-day decisions.”

It has 13 million members, more than any other UK fund, £40 billion of assets under management and is growing rapidly as more workers are auto-enrolled. It received £6.5 billion in contributions last year, which had to be invested, and expects assets to more than double to £96 billion by 2030, surpassing the Universities Superannuation Scheme as the UK’s largest pension fund.

Nest’s focus on the UK comes at a time when other pension funds are divesting from Britain, starving business of capital. The Treasury is under pressure from business to offer tax incentives to invest in UK-based firms or set mandatory investment requirements for pension funds. 

Labour wants to use guarantees and co-investment to crowd in pension fund money for green and other infrastructure projects. It has said it will establish a National Wealth Fund to invest £7.3 billion over the next parliament. 


Supporters of mandatory allocation argue that tax relief on pension contributions means the state is also paying in, only for the money to prop up overseas companies. Of Nest’s £6.5 billion contributions last year, 11% was from tax relief, its documents show. 

Fawcett does not support mandation. “The risk is you force a large amount of money into assets that are not that attractive so you pump up valuations and overpay. We have a fiduciary duty to members,” he said.

The government plans to make pension funds disclose how much they are investing domestically by 2027. “Disclosure requires comply or explain,” Fawcett said. “You have to justify your decisions and answer for that.”

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