Pension authority breaks new ground for LGPS management

London Pensions Fund Authority is set to become the first local government pension scheme to use a new framework it has established for appointing managers for alternative investments.

LPFA said that it is hoping by the end of March to choose one firm from the framework – to which four firms were appointed last week – to run a mandate worth up to £150m.

The four-year framework will be open to all local government pension schemes looking to appoint alternative investment fund managers.

A spokesman for LPFA told Room151: “We are seeking to appoint an alternative credit manager and felt this would fall within the European procurement rules and as such we decided to run a tender.

“There was no such framework in existence which we were eligible to use so we decided to liaise with other LGPS funds and to develop a framework from which mini – competitions could be run in the future.

“This saves other LGPS funds from having to go down the full European tender route – thus saving them time and money.”

The fund whittled down 35 applications to join the framework to just four firms – Apollo Management International, Ares Management, Babson Capital and GSO Capital.

Firms on the framework will be expected to target an annual return of between 10% to 15% with minimal use of leveraging arrangements.

The framework says that managers should invest in direct corporate lending, mezzanine debt, leveraged senior secured loan, high yield debt, structured credit; distressed/stressed debt, real estate debt, and trade finance.

The tender document published by LPFA said: “The mandate will be able to invest in illiquid and liquid securities, however there is expected to be a portion of the overall mandate which can be liquidated within 0-3 months with further liquidity grading after that.”

The LPFA’s own £150m mandate will form part of the fund’s 30% allocation to illiquid assets. It holds a further 55% in liquid assets and the remaining 15% in total return holdings.

In November, LPFA announced plans to create a pooled £10bn investment fund which could be opened to other LGPS funds.

Link: Lancs and LPFA merge assets and could open door to other funds