Five London LGPS funds go it alone to invest in private debt

by Colin Marrs
in LGPS
— 12 Apr, 2018

A group of five London LGPS funds are set to create their own pooled private debt fund, outside of the London Collective Investment Vehicle (CIV).

With the London CIV yet to produce its own private debt option for member funds, the five boroughs have appointed investment consultant bfinance to start the search for a manager to lead their own initiative.

The investment mandate is expected to be £250m, although bfinance said that could rise, if more London councils get involved.

Bridget Uku, group manager of treasury and investments at the London Borough of Ealing Pension Fund, said: “The key drivers for investing in private debt is to diversify the fund’s source 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 [Ealing] 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 in an asset class where the expected total returns still look attractive relative to many other asset classes.”

London CIV’s fund launch status report, produced in January of this year, includes provision for two fixed income private debt funds.

One, covering liquid loans, was penciled in for a launch in July this year, while an illiquid direct lending fund had no launch date confirmed.

A report presented to the CIV’s sectoral joint committee in January said fund manager Ares would be appointed to run a private debt fund, subject to due diligence.

The report said: “The CIV will require written soft commitments to funds before submitting prospectuses to the FCA and work towards the launch of these products can complete.”

However, alongside Ealing, LGPS funds in Havering, Lambeth, Wandsworth and Merton are set to press ahead with their own pooled private debt fund.

Sam Gervaise-Jones, head of client consulting for the UK & 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 wider benefits that collaboration can offer, these boroughs can achieve significant cost savings and improved control.”

A London CIV spokesperson said: “The London CIV has worked with London boroughs to select Ares as a private debt manager for the London CIV private debt fund which is in the process of being launched.

“We are also holding a seminar next month for all the London boroughs to have an opportunity to meet the manager and understand how this fund can be used as part of their asset allocation. We are now open to commitments from London boroughs who wish to invest in private debt.”