Berkshire pension fund to increase private debt

The fund achieved a nominal return of 0.5% in the last financial year and is now looking to invest in private debt as low interest rates begin to bite.

The Royal County of Berkshire Pension Fund plans to increase its exposure to private debt throughout the current financial year.

The UK-based public sector pension fund manager made the announcement in its annual financial report as it looks to higher yielding strategies following the underperformance of its investment in commodities and the Bank of England’s decision to reduce interest rates by 25 bps.

In addition to private debt, the fund will increase its commitments to private equity, emerging markets infrastructure and UK mid-market infrastructure. According to PDI data the fund’s allocation to private debt stands at 9.4 percent.

The fund has also said it will redeem entirely its investment in the commodities fund managed by Gresham Investment Management and is selling its UK real estate recovery fund managed by Aviva Investors at a premium.

Berkshire did not immediately respond to a request for comment.

In the financial year ended March 2016, the fund marginally increased its total assets to £1.7 billion ($2.2 billion; €1.96 billion) and achieved a nominal investment return of 0.5 percent. This amounts to a 4.8 percent return over the previous three years. In real terms, the fund saw returns grow 4 percent over the last three years, despite a 0.1 percent fall in the 12 months to April.

In his note to members, John Lenton, chairman of the pension fund, attributed the returns to the macroeconomic turmoil towards end of 2015 and at the beginning of this year.

“Stock markets experienced bouts of sharp volatility as global economic growth continued to slow down. Uncertainty has increased as economic conditions and some financial indicators have significantly deteriorated over the financial years and more recently around the Brexit referendum,” he said.