The £15.4bn (€21.8bn) Strathclyde Pension Fund is looking at add multi-asset credit into its portfolio as the scheme further looks for “enhanced yield” opportunities.
The local government pension scheme (LGPS), the largest in the UK, has begun searching for a multi-asset credit manager.
Strathclyde said it has provisionally earmarked £300m for the strategy but could allocate more over time.
In April, it announced a radical reduction in its equity portfolio in order to fund a move to “enhanced yield” strategies, considering a range of alternative options to manage downside risk.
The pension fund, which provides retirement income to public sector workers in the west of Scotland including Glasgow, said managers should be able to provide returns of LIBOR +4% and primarily invest in high-yield and syndicated loans.
However, it said managers would be given freedom to invest across other credit markets under certain guidelines.
“The main purpose of this mandate is to provide exposure to higher yielding credit market beta. We do not envisage that hedge fund strategies or extensive use of leverage to be appropriate,” the pension fund said.
Interested managers have until 22 October to contact Hymans Robertson for further information on the mandate, with the fund expecting to shortlist 6-8 managers before making a final decision.
The scheme’s move to enhanced yield means shaving between 10 and 20 percentage points off its equity allocations in order to fund moves to both short and long-term enhanced yield strategies by 2018 – which would account for 40% of assets (Options 1 and 2).
The fund currently allocates around 20% to short and long-term strategies, however after meetings this summer it has decided to emphasise multi-asset credit and private debt.
It will also consider amending its equity portfolio to become equally weighted across global markets by underweighting its exposure to the US market and capping its UK exposure to 5% via a Legal and General Investment Management (LGIM) mandate.
The LGPS is currently devising a plan on regional allocations to be submitted to the board in November, and will increase its exposure to fundamental indexation strategies.
Strathclyde also invests in absolute return strategies, mainly through a PIMCO-administered mandate which returned 3.3% in the year to April 2015.
However, the fund is now considering moving from PIMCO’s second Absolute Return Strategy to its third option with a higher return target, in order to better account for the scheme’s short-term enhanced-yield strategy.