The investment arm of the UK’s £67.6bn (€77bn) Universities Superannuation Scheme (USS) is planning to make a first foray into public market asset-backed securities (ABS) as part of a move to grow its internal fixed income and treasury management team.

The scheme is currently recruiting for four fixed income positions, including a head of ABS to lead its debut in that area. The job ad indicates there are plans for a “substantial sterling senior ABS portfolio”.

USS is also looking to hire an investment grade credit portfolio manager, an LDI portfolio manager, and a credit analyst.

USS Investment Management brought Ben Clissold on board as head of fixed income and treasury in January 2020, and he recently outlined plans for the team to have grown “significantly” by early 2022, from the six it numbered when he joined.

“As we build our capability, so we are taking more of these mandates in house which means we are able to do more to invest the scheme’s assets at a lower cost than paying an external manager for the same service,” he wrote in an update recently.

USS said it does not comment on external managers. USS Investment Management looks after nearly three-quarters of the scheme’s assets directly and uses external managers for the balance.

In his update on the USS website, Clissold said that when the coronavirus-linked market dislocation in March really hit, USS bought synthetic credit exposure, which it subsequently turned into physical bonds as credit spreads tightened.

“We are now actively engaging with banks’ syndicate desks to ensure that they know we are in the market, particularly for long-term inflation-linked opportunities,” he wrote, adding that over the last year USS had materially increased its exposure to liability-matching assets such as bonds.

“Over the last year or so we have materially increased our exposure to liability-matching assets such as bonds which help us protect ourselves against rising inflation while also supporting us in paying pensions as they fall due.”

USS provides both defined benefit (DB) and defined contribution pensions, with the DB section accounting for nearly all of (£66.5bn) of its assets. It is currently carrying out a controversial funding valuation, which it has warned points to higher costs.

As at the end of March 2020, it had a 6.5% allocation to nominal government bonds, 26.85% to index-linked bonds, and about 11% in other fixed income.

USS’s move to grow its fixed income capability in house comes after an overhaul of its approach to investing in developed market equities. Innes McKeand, from Australian Super, has been appointed to the new role of head of strategic equities.

Looking for IPE’s latest magazine? Read the digital edition here.