The UK’s Environment Agency Pension Fund (EAPF) has recorded a 9.4 percent return from private lending in its annual report for 2016/17.
The figure beat a target return of 5.8 percent and was also ahead of the 8.0 percent return posted by the private lending segment in 2015/16.
The performance given is for the organisation’s aggregated private lending exposure, totalling £47.8 million (€62.3 million; $54.0 million), or 1.5 percent of the total fund, at 31 March 2017.
EAPF has a 5 percent target allocation for private debt and illiquid credit, which is described in the report as a “fairly new area” for the firm. It has allocations in the Generation Credit Fund, which provides lending to SMEs, and the BlueBay Direct Lending UK Fund.
In autumn last year, the pension allocated to a new private debt fund being raised by Permira Debt Managers – Permira Credit Solutions III – targeting small and medium-sized companies in the UK and the rest of Europe as it “sought additional investments to meet our strategic target and provide diversification”.
The report added: “We are looking to invest in further funds in this area during 2017/18 as we continue to believe this is an interesting area and we are below our target allocation”.
As the pension fund of the Environment Agency, a UK public body established in 1995 to protect and enhance the environment in England and Wales, EAPF has a focus on ESG issues.
In the report, it said: “Although formal integration of ESG considerations is at an early stage in this sector [private debt/illiquid credit], we feel it is an attractive area for responsible investment as it is about supporting real business to grow and employ people, and has limited exposure to high risk areas.”
The EAPF portfolio as a whole delivered a return of 19.6 percent for 2016/17 compared with 2.3 percent for 2015/16. It attributed the performance to the weakness of sterling after the Brexit vote and strong equity market returns boosted by signs of a broadening global economic recovery.
However, it fell short of its benchmark return of 21.2 percent which the report said was “primarily down to the fact that the fund has chosen managers with a deliberate tilt towards low volatility, high quality companies, with a view to reducing downside risk and volatility”.
The pension has delivered returns of 11.6 percent over the last five years, and in 2016/17 grew its net assets by £545 million to £3.3 billion.