The London Pensions Fund Authority (LPFA), which runs a £4.8bn (€6bn) pension fund within the Local Government Pension Scheme (LGPS) for workers in the UK capital, is looking for six alternative credit managers.
The LPFA is aiming to set up a four-year framework agreement with as many as six managers to provide £100m or more of investment in illiquid and liquid higher-yielding debt.
The pension fund’s committee has agreed to consider investing in a segregated alternative credit mandate to invest in these markets.
Once set up, the framework agreement will be open to other eligible local authorities and LGPS funds.
Although the parameters are flexible, the authority said the mandate was broadly expected to be between £100m and £150m, but that this amount could increase if more took part.
It said it was looking for a segregated mandate and would not consider pooled funds.
The mandate will target an annual absolute return of 10-15% net of fees with minimal or no use of leverage, by investing in a number of higher-yielding debt markets.
These markets include direct corporate lending, mezzanine debt, leveraged senior secured loans, high-yield debt, structured debt and distressed/stressed debt, it said.
Other types of debt included are real estate debt and trade finance.
The proposed portfolio is to have a 5% running yield, the LPFA said, as it expects income to be paid in the near future.
All currency exposure must be hedged back to sterling.
Derivatives can be used in a limited way to give some downside protection by hedging credit risk.
The deadline for requests for documents is 16 October at 10am, with the deadline for receipt of tenders or requests to participate coming shortly after that at noon.