The latest Pension Fund Forum discussion offered timely insight for LGPS investors into how multi-asset credit can support changing priorities as market conditions evolve, says Ross Curran, multi-asset credit portfolio manager at BSP-Alcentra.
As schemes mature and cashflow needs intensify, many LGPS investors are looking for ways to generate income and access a broader range of fixed income opportunities with greater efficiency. Multi-asset credit (MAC) can help achieve this by combining diverse credit exposures within a single, flexible mandate.
A recent Pension Fund Forum discussion on Asset TV featuring BSP’s Ross Curran and LGPS Central’s Simon Hancock explored exactly how MAC can support these aims, highlighting several key themes.
Income and flexibility remain central considerations
As LGPS funds evolve, income generation and flexibility continue to sit at the heart of allocation decisions. Many schemes are seeking dependable returns as cashflow needs grow but also approaches that can adjust as different areas of the market move in and out of favour.
This is one reason some investors favour credit managers able to draw on a broad opportunity set and adapt when conditions change. Approaches that combine flexibility with diversified credit exposure can help schemes avoid over-reliance on any single asset class while supporting long-term income objectives.
These priorities are prompting greater interest in MAC, which enables income to be sourced from a wider set of credit markets while retaining the ability to adjust allocations as opportunities emerge.
MAC offers flexibility – but approaches vary widely
MAC remains a broad label rather than a standardised strategy. Managers differ in philosophy, risk appetite, and the range of credit markets they target.
Some strategies emphasise liquid, diversified credit exposure and rotate dynamically within that universe. Others focus more heavily on sub-investment-grade or specialised areas, seeking higher income. Some maintain a relatively stable mix; others are designed to be more tactical.
For LGPS investors, this diversity is part of the appeal. It allows schemes to choose approaches that align with their objectives, liquidity needs, and risk tolerance, while still giving managers the flexibility to adjust exposures as opportunities emerge.
Market conditions highlight the value of adaptable credit exposure
Recent market conditions have remained supportive for credit investors, with both Ross and Simon noting strong demand across the asset class. As interest rates ease, many asset owners continue to search for yield, helping to keep flows steady. Corporate fundamentals remain resilient, and defaults – where they arise – have been idiosyncratic rather than driven by wider pressures.
Valuations, however, are uneven. Some areas look tight, while others still offer more compelling compensation for risk. For LGPS investors, this reinforces the value of strategies able to look across markets and adjust allocations selectively. MAC is well placed to do this, helping managers respond to evolving conditions while continuing to target income and diversified returns.
A dynamic style within the MAC universe
Where schemes want income with the ability to respond quickly to changing conditions, more dynamic styles of MAC can play a useful role. These approaches look across sub-investment-grade markets and adjust allocations as valuations and fundamentals evolve.
BSP is one example of this style. The firm has been investing in the underlying building blocks of MAC since 2002 and launched its first dedicated MAC fund in 2015. It takes a liquid, sub-investment-grade approach built around a core of high-yield bonds and leveraged loans. This includes exposure to both European (including UK) and US markets, rather than leaning predominantly towards the US as some managers do.
The strategy also makes tactical use of liquid alternatives such as CLO tranches and stressed credit, with all exposures managed within a single integrated portfolio. This structure gives the team a holistic view of risk and the ability to shift capital quickly as conditions change.
Such responsiveness has proven effective in periods of dislocation. Following the UK mini-Budget in 2022, for example, European loan spreads widened sharply despite little change in fundamentals. The team viewed the reaction as an overstatement, increased exposure during that window and benefited as markets normalised.
The strategy is supported by a team that has worked together for more than a decade, underpinned by deep credit research and special-situations expertise. This helps maintain a focus on areas where investors are appropriately compensated for risk and the ability to identify selective opportunities in stressed situations.
What the discussion means for LGPS
For LGPS investors, three priorities stand out: dependable income, the flexibility to adjust as conditions evolve, and the ability to look across a broad opportunity set. MAC brings these elements together within a single allocation, enabling schemes to access diversified sources of return while retaining the scope to respond to market shifts.
Approaches differ widely, but for those seeking a more dynamic option within the sub-investment-grade universe, styles such as BSP’s show how active rotation, integrated portfolio construction and deep credit work can help capture opportunities and navigate dislocation.
To hear the full perspectives from the panel, watch the Asset TV discussion in full here.
