The £1bn (€1.2bn) pension fund for the London borough of Newham is tendering mandates for global high-yield bonds and private corporate debt for a total of around £170m, with the biggest allocation being to direct lending.
IPE understands that this is the first time the local government pension scheme (LGPS) has allocated to these asset classes, with the search for higher yield a key driver of the move.
Both mandates are for investment via a pooled fund vehicle, according to tender documents.
The pension fund is looking to invest around £110m in private corporate debt.
It would prefer to hire one global manager but is willing to consider two managers, in which case one would be focused on the US market and the other on Europe.
The fund should have a minimum size of £400m.
The pension fund is looking for LIBOR plus 4-5%.
Other criteria include absolute return in terms of target net internal rate of return (IRR) of 6-8%, an investment period horizon of 3-5 years, a buy-and-hold management style and a focus on senior debt.
The contract is for five years.
The global high-yield bond mandate is for around £60m, to be invested with one manager.
As for the private corporate debt mandate, the pension fund does not want to hold more than 20% of a fund’s assets/commitments.
The global high-yield bond fund should therefore be at least £240m.
The tender document specifies that the pension fund would prefer a sterling “hedged share class” and an “accumulative” share class but would also consider a “distributive” share class.
It will be up to the manager to choose the benchmark for the strategy, but the tender document states that it “will preferably be” a global high-yield bond index from either Bank of America Merrill Lynch or Barclays.
The portfolio must be globally orientated and be able to invest in non-US-dollar-denominated bonds.
Other criteria mentioned in the tender are that a maximum of 10% can be invested in investment-grade bonds, and up to 20% in triple-C rated bonds, while up to 20% of investments can be off-benchmark.
The contract is for three years.
Bfinance is conducting the tender on behalf of the pension fund.
Its mandate tenders come shortly after the London Collective Investment Vehicle (CIV), which Newham pension fund helped found, announced that it was going to launch a multi-asset sub-fund in December and a range of UK and global equity mandates in the months thereafter.