The Greater Manchester Pension Fund and the London Pensions Fund Authority have announced the joint allocation of up to £500m to invest in infrastructure.
The funds will initially focus on opportunities in Greater Manchester and London over the next three to four years.
Last year the LPFA announced a tie-up with the Lancashire County Pension Fund to combine £10bn in assets and liabilities to save on administrative costs. Both funds retained their brand identities and accountability structures.
In a joint statement GMPF and LPFA said that they would use their local presence in the two cities to best advantage, but have a high degree of flexibility for suitable opportunities.
The structure aligns with both funds' responses to central government on the reform of the Local Government Pension Scheme, which called for closer collaboration between funds in order to realise the benefits of increased scale.
Cllr Kieran Quinn, chairman of GMPF, said: "In the UK we are only beginning to realise the potential for public pension funds to support the development of infrastructure projects, at the same time as delivering sustainable, high-quality returns to scheme members and employers.
"GMPF are long-standing investors in infrastructure and we look forwarded to using our experience and knowledge to help build this into something of great value to the UK as a whole, with an initial focus on Greater Manchester and London, which are two key areas in driving growth."
The LPFA administers a £4.9bn pension fund. GMPF is the largest pension fund in the UK, with assets of £16bn and 340,000 members from more than 400 employers.