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Strathclyde allocates £900m to quartet of private debt managers

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The UK’s second-largest public sector pension fund has invested £900m (€1bn) in private debt, appointing three managers to run the allocation.

The £20.8bn Strathclyde Pension Fund has hired Partners Group, Barings, Alcentra and ICG Longbow to manage roughly 3.5% of its total assets, according to council documents.

The investments form part of Strathclyde’s “short-term enhanced yield” bucket, which aims to “deliver an absolute return higher than cash or short-term bonds and with a high degree of predictability”, investment manager Richard Keery wrote in a report to the fund’s investment committee.

The pension fund already has allocations to funds run by Barings and Alcentra, but these were “specific funds raised by these managers” and not open mandates, Keery said.

He added: “They have both made good progress with their existing allocations and also scored highly in the tender process. Awarding a new mandate to Partners Group further increases the capacity and diversification of the fund’s private debt strategy.”

Alcentra and Barings will each have target allocations of 1.25% of fund assets – bringing them both up to 2%, including the existing investments – while Partners Group has a target of 1% of assets.

ICG Longbow has been awarded a mandate to run private real estate debt, with a target of 1% of Strathclyde’s assets.

The short-term enhanced yield allocation was introduced in 2015 alongside a similar long-term allocation. Strathclyde has been building up its investments in both strategies as part of a long-term risk reduction exercise. It currently aims to invest 20% of its assets in each bucket by 2020.

As of 31 December 2018, the short-term allocation was worth £2.9bn and accounted for 14.2% of total assets, while the long-term strategy was worth £3.5bn, or 16.7%.

In addition, Strathclyde’s investment committee approved a £20m investment in Albion Community Power, a company focused on small-scale renewable energy projects in the UK. It marked the third time the pension fund has invested in Albion, having previously allocated £10m in 2014 and another £10m in 2015.

The investment was made via Strathclyde’s Direct Investment Portfolio, which allocates to smaller funds with a bias towards UK projects.

Over the course of 2018, Strathclyde’s investment portfolio lost 1.5%, although this was comfortably above its benchmark, which declined by 2.4%. Over five years to the end of 2018 the fund posted an average annual return of 8.9%, compared with the benchmark’s 7.7% annual average gain.

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