Universities Superannuation Scheme (USS), the UK’s largest private pension fund by way of assets, is starting its first investments in asset-backed securities (ABS).
The mandate will be focussed on publicly listed investment grade securities and likely to exceed £1bn (€1.2bn) over the next couple of years, it said.
As the scheme’s investment arm has built up its fixed income and treasury capability, it has taken more mandates in-house.
Last year USS Investment Management hired Janet Oram, formerly of BlackRock, for the new role of head of ABS. She has since been joined by Colin Behar as portfolio manager, and the team is currently seeking to add an ABS analyst.
Oram said it was an interesting time to be launching a new mandate: “Subject to careful analysis, we feel there are likely to be some very good opportunities over the coming months in particular.”
When USS was recruiting for a head of ABS it said there were plans for a substantial sterling senior ABS portfolio. Oram said that the ABS market offered an opportunity to broaden the scheme’s investment universe in sterling credit, reducing foreign exchange hedging costs, but also created additional high-grade capacity in a sector that had historically demonstrated strong relative value.
“AAA-rated securities within the mandate will also provide flexibility for collateral management in the LDI book,” she said.
The next step for the ABS team will be to partner with USS IM’s in-house private markets team on a more yield-seeking mandate, USS said. A spokesperson for the scheme said this was work-in-progress and therefore too early to provide any further information.
Speaking to IPE earlier this year, Oram said new post-financial crisis regulations had made the ABS market resilient over the past few years. There was now a general acceptance that securitisation is a useful tool and that a healthy ABS market is a necessary cog in fully functioning capital markets, she said.