French public sector pension scheme Ircantec is aiming to increase its exposure to alternative credit, particularly by lending to small and medium-sized enterprises (SMEs), a conference in Berlin heard on Friday.
On a panel discussion on credit and alternatives at the 2016 IPE Conference & Awards, Caroline Le Meaux, head of external management at Caisse des Dépots et Consignations, Ircantec’s fiduciary manager, said: “We are targeting SMEs, and why we choose to invest in those companies is that our trustees felt they wanted to have an impact.”
The €9.2bn pension scheme started adding private debt to its overall portfolio from 2014, she said.
“The private debt market for bigger companies is quite crowded, so we felt we would have a better risk/return profile for smaller companies,” Le Meaux said.
Casper Hammerich, investment consultant at Kirstein in Denmark, said the long-seen shift in institutional investment portfolio asset weightings towards alternatives had in recent years been very much dominated by a move into alternative credit.
“It is clear that both traditional and leading investors are starting to increase risk,” he said.
He explained the notion of the two investor types, saying the firm had witnessed investors falling into these two groups, with certain ones – the “leading” ones – being quicker to move into assets with better perceived prospects for higher returns, and “traditional” investors to a large extent following in their footsteps.
Meanwhile, Chris Redmond, global head of credit at Willis Towers Watson in the UK, said the landscape and implementation of alternative credit investment was evolving rapidly.
Even though the firm’s clients now have some £39bn (€46bn) of assets invested in alternative credit, he said: “We are nowhere near where we ought to be in terms of strategic allocation to this.
“We all know equities and bonds are unlikely to deliver the returns they have before, and we are going to live in a world where growth will be tepid, and there could be a nasty outcome if central banks are unable to do what they are aiming for.”
There are significant opportunities in alternative credit for institutional investors, he said.
Le Meaux said even though Ircantec would like to switch some of its investment exposure to alternative credit from government bonds, it faced a big challenge in actually doing this.
“It takes time to get involved,” she said. “It’s a very long process, and we need to start from a lower level and be slow.”
She said it was necessary to take time – to work out how to deal with the risk embedded in these new assets, for example.
Also, every fund has a different regulation framework to operate within, and, in the case of Ircantec, the regulators are still quite nervous about the fund lowering its investment in government bonds, she said.
“We can’t go against their will,” she said. “Something we have to do is to engage with them – we need to speak to all our regulators.
“We need to have a pension that is risk-aware, and also one that is growing over time, because not growing is a big risk.”