London councils launch £250m private debt mandate

Five London pension funds are to commit about 5% of their assets to private debt.

Five London borough pension funds have allocated a total of £250 million for private debt investment for their first foray into the asset class.

Investment consultancy bfinance announced it is working with the London Boroughs of Ealing, Havering, Lambeth, Wandsworth and Merton. All the boroughs are part of the London Pension Collective Investment Vehicle, which has not yet launched a private debt investment programme.

Ealing is leading the investment programme and the expected £250 million allocation represents 5.5 percent of the five boroughs’ total assets under management of approximately £4.5 billion. bfinance said the total allocation could rise if other London boroughs choose to take part in the programme.

Manager search and selection will be conducted by bfinance while JLT Employee Benefits will work with the boroughs and bfinance to design the mandate. Each of the London boroughs are aiming to improve investment returns for their local government pension schemes by looking for improved yields and stronger risk-adjusted returns, which bfinance said has led to increased interest in private debt.

Bridget Uku, group manager of treasury and investments at 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 that majority of their returns from income as opposed to capital growth.

“The Fund 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 into an asset class where the expected total returns still look attractive relative to many other asset classes.”