The Universities Superannuation Scheme (USS) has entered into a partnership with Credit Suisse to invest in private debt.
The UK’s £49.8bn (€58.6bn) higher education employers’ scheme has invested in a portfolio providing debt finance to private equity and asset management companies. The groups in turn provide loans to medium-sized companies in Europe, using the facility from USS and Credit Suisse as leverage to boost their returns.
Ben Levenstein, head of private credit and special situations at USS Investment Management, said: “This transaction gives USS exposure to top-tier private credit managers through a high-quality portfolio of loans delivering an attractive risk-adjusted cash flow for the benefit of our members. USS’ private credit strategy continues to look for innovative solutions to access return premia above those available in public markets.”
The structure of the loan book is broadly similar to AAA-rated or AA-rated listed securitised debt notes.
Credit Suisse originally began raising funds in the sector in 2014. USS has now purchased a “majority interest” in the portfolio, according to the Swiss investment bank.
Credit Suisse said the deal was an “attractive exit” for its Strategic Resolution Unit, which held the loan book, but it allowed the bank to “maintain a strategic presence in this market alongside… an experienced long-term investor”.
It has also opened the door to other institutional investors to access the portfolio to provide the asset managers it is financing with a “diversified pool of long-term institutional capital”.
Mike Powell, head of USS’ private markets group, described the partnership as an “innovative landmark transaction”.
Credit Suisse will also provide risk management services to the portfolio, as well as continuing to source new assets.
“The transaction offers continuity of service and access to an institutional pool of longer-term flexible capital for the fund managers holding the loans,” Credit Suisse said.
USS has been expanding its private markets operations over the past two years. In November 2015 it hired six new staff to oversee its growing unlisted portfolio, which includes private equity, private credit, property, and real assets.
The pension fund is seeking a more direct route to private assets. In 2015 it bought Moto, which runs motorway services stations across the UK, and a year ago it sold a £640m portfolio of stakes in private equity funds.