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UK Merchant Navy scheme in high-yield boost

UK – The £2.5bn Merchant Navy Officers’ Pension Fund is set to raise its allocation to high yield bonds, says director of investments Alick Stevenson.

“We’re probably going to increase our exposure to it,” Stevenson said during a session at the National Association of Pension Funds’ annual investment conference in Edinburgh. The scheme currently has £30m with Muzinich & Co. A further shift into high yield would be at the expense of UK credit, he added.

The scheme funded the portfolio in 2003 as part of a restructuring. Stevenson said: “We reduced risk and improved fund return. It’s been good for us.” The scheme had to change its statement of investment principles to move into the asset class.

“We recently broadened the mandate into European fallen angels,” he added. These companies included such names as Ericsson and FIAT. “All of these: good bonds and lots of value.”

He added the MNOPF had been lucky so far with few defaults. “It’s flexibility with the mandate that’s important.” He said he couldn’t understand why funds would invest in small-cap equities instead of high yield.

The high yield portfolio has a hurdle rate of 6% p.a. nominal. “We said ‘forget the index,’” Stevenson added.

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