London pension fund preparing splash into private debt

The Newham Pension Fund is eyeing up senior strategies generating returns of 6 to 8% as it prepares a move into the asset class with a £110m investment.

The London Borough of Newham Pension Fund is planning to make a £110 million ($138 million; €130 million) investment into senior-focused private debt strategies.

Targeting net IRRs of between 6 and 8 percent, the pension fund is aiming to put the capital into one global fund, although it is open to splitting the investment into two strategies covering the US and Europe.

The fund, which manages the pension benefits of local government workers, has just over £1 billion of assets under management and has experience of investing in equities, bonds, real estate, private equity and infrastructure.

Under the terms outlined in its documents published in the Tenders Electronic Daily on 30 November, fund sizes must surpass £400 million and its allocation must not make up more than 20 percent of the total commitments to the strategy. Funds must not have leverage.

Bfinance is advising the pension fund on its search. Neither the advisory firm nor the pension fund immediately responded to a request for comment.

Newham follows the North Yorkshire Pension Fund (NYPF), which is preparing to allocate to strategies managed by Permira and BlueBay, into the asset class as UK institutional investors continue their search for returns in the current low yielding environment. The NYPF is expected to make its first pledge after an investment committee recommended allocating £120 million to the asset class.

Earlier this year, the Royal Mail Pension Plan reported on its increasing exposure to private debt over the last 12 months as interest in alternative credit strategies continues to increase. Advisory firm Elian recently published a study showing investors’ appetite for private debt was unshaken by the uncertainty following the UK’s vote to leave the European Union.