People’s Pension has instructed Invesco to manage over £260m in AAA-rated Collateralised Loan Obligations (CLOs).
The investment will look to combine direct CLO exposure with Invesco’s AAA CLO ETFs, forming 5% of the People’s Pension’s default fixed income allocation.
The move comes as pension schemes are under pressure to improve member outcomes with traditional bond allocations suffering from lower relative yields, duration risk, and higher cross-correlations. These circumstances created demand for alternatives that can enhance yield without materially increasing credit or liquidity risk.
Charlotte Vincent, the co-head of fixed income for People’s Pension, said the provider wanted to diversify its fixed income exposure and offer members an innovative long-term income-generating solution as part of its default investment.
“We believe Invesco’s ability to access the CLO market through AAA ETFs has made this accessible and offers the transparency, liquidity and investment outcomes we are seeking to achieve, she said.
“AAA CLOs can be integrated into mainstream fixed income strategies, and we believe delivering these through ETFs, can simplify access. By including CLOs, investors can tap into a broader opportunity set, reducing concentration risk and improving overall portfolio resilience,” she noted.
Scott Baskind, head of global private credit at Invesco, added: “AAA CLO’s offer the widest choice with the highest potential yield, with only an incremental increase in risk levels. Doing this through an ETF structure also offers the investor the flexibility and transparency to make changes without the traditional operational hurdles of accessing CLO’s within a transparent, liquid, and scalable vehicle.”
He said: “For pension schemes seeking to strengthen member outcomes in a challenging fixed income environment, CLO AAA ETFs represent a compelling next step in retirement plan innovation.”
Earlier this year, People’s Pension appointed Invesco to manage its fixed income portfolio, and today’s news further demonstrated the partnership between the provider and the manager.
Speaking to IPE earlier this month for its 21st Leaders in Investment podcast, Dan Mikulskis, chief investment officer of People’s Partnership, flagged the importance of partnerships, pointing out that a focus on “big, meaningful partnerships” and a “small number of managers with bigger mandates” is key to driving better value for members and driving better cost efficiency through the portfolio.
Mikulskis added that it was important for People’s Partnership to work with managers that feel like “an extension of the internal team” and can push forward new ideas and new strategies. He pointed out that People’s Partnership will be launching new ideas and investment components over the years from those collaborations.
He added that the partnership with Invesco and Amundi – which won a £20bn equity mandate from People’s Pension at the same time Invesco won its £8bn fixed income mandate – was underpinned by a culture from the manager’s side that aligned with People’s Partnership.
“It felt like it could deliver the best of a large organisation into a single relationship point, which I think is actually really challenging,” Mikulskis said in the podcast.
He added that the asset management industry is built on scale and managers want to build products that can scale to “the billions and billions and billions and billions and billions”.
“But the issue is that partnerships inherently are not scalable, because there’s a huge human factor in terms of those relationships. In some ways, you’re cutting against the grain of the way the asset management industry has been set up, actually, in trying to get those partnerships. That’s certainly what it felt like as we’ve gone through that,” he said.
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