Five UK public sector schemes have teamed up to allocate £250m (€285.6m) to private debt.
The pension funds for the London boroughs of Ealing, Havering, Lambeth, Wandsworth and Merton have appointed consultants bfinance and JLT Employee Benefits to design the mandate and conduct the manager search.
It is the first time the five funds have allocated to private debt, according to a press release from bfinance. Between them they run roughly £4.5bn.
Bridget Uku, manager of treasury and investments for Ealing, said her fund wanted to diversify its sources of returns and “increase the fund’s exposure to assets that derive the majority of their returns from income as opposed to capital growth”.
“The fund has benefited from its sizeable equity exposure and on the back of these strong returns it agreed to reduce this exposure and use the proceeds to invest into an asset class where the expected total returns still look attractive relative to many other asset classes,” Uku added.
All five schemes are members of the London CIV, set up to pool assets across the city’s 32 public sector funds, but the vehicle has yet to launch a private debt strategy.
However, earlier this month IPE reported that the London CIV had appointed managers to fixed income mandates, including Ares Management to run private debt and liquid loans.
The appointments were pending the completion of legal work, operational due diligence and contractual arrangements, a spokesperson for the London CIV said.
Sam Gervaise-Jones, head of client consulting for UK and Ireland at bfinance, said: “Private debt has seen a steady increase in demand in recent years, aided by an ultra-low yield environment and periods of volatility in Europe’s public bond markets since the financial crisis.
“By collaborating with their peers, and combining the benefits of private debt investment with the wide benefits that collaboration can offer, these boroughs can achieve significant cost savings and improved control.”