The UK Pension Protection Fund (PPF) has awarded a £400m (€549m) direct lending mandate to Pramerica Investment Management as it looks to grow its hybrid assets portfolio.
After launching a tender over 18 months ago, the £22.6bn PPF settled on the US firm to have it source £400m of direct loans in the next two years.
The loans will fall into the lifeboat fund’s hybrid asset class; a growing allocation of investments that act as liability matching assets with growth potential.
The PPF’s exposure to direct lending – its first foray into the asset class – will see Pramerica offer UK corporates fixed-rate or inflation-linked loans with maturities in excess of five years.
The direct lending portfolio will complement other inflation or interest-rate linked investments in the fund’s hybrid portfolio, which aim to account for 12.5% of the pension fund, or £3bn, by 2017.
Other hybrid assets include investments in solar power, property and long-term leases including a £330m commercial property investment in Manchester, currently leased to the Royal Bank of Scotland (RBS).
After amending its statement of investment principles last year, the PPF dropped its 70/30 growth/LDI basic portfolio split and created the hybrid asset class to allow it more flexibility to invest in newer asset classes.
When searching for a direct lending manager, the PPF said its preferred choice would only lend on an investment grade basis and have capability to source deals directly, or be involved in primary market syndications.
Pramerica, one the world’s largest private placement managers, said it had over $20bn (€17.5bn) invested in private fixed income outside of North America, and began lending in Europe in 1996.
Direct lending as an asset class has grown in recent years, with some pension funds keen to address the lending gap left by banks’ withdrawal from the market.