North Yorkshire Pension Fund to make first debt pledge

Permira and BlueBay are the likely beneficiaries of a £120m commitment split equally between the funds.

North Yorkshire Pension Fund is to make its first commitment to private debt after an investment panel recommended allocating £120 million ($155.4 million; €139million) to two strategies.

The total represents around 5 percent of the fund’s overall portfolio and will be split equally into platforms managed by Permira Debt Management and BlueBay Asset Management.

NYPF began its search for mangers in January following the publication of its offering in the Tenders Electronic Daily, part of the Official Journal of the European Union.

NYPF was looking at funds investing in corporate debt across northern Europe with a limited exposure to southern markets. This included an openness to senior, unitranche, subordinated and mezzanine strategies. It was seeking a minimum target net IRR of 9 percent with the regular home distributions of 6 percent or above.

According to pension fund documents published this month, NYPF explained why private debt was an enticing opportunity: “The banking sector has withdrawn to some extent from lending to small and medium-sized enterprises. This has created a gap in the market place which a number of investment managers have stepped in to fill.”

A representative from NYPF was not immediately available to comment further.

Bfinance advised NYPF on its selection after receiving 23 proposals from managers. The panel made its decision last month, which included a recommendation to disinvest from another fund to compensate for the private debt commitment, although it did not nominate one in particular. It is now up to the broader membership of the fund to commit to the investment.

NYPF’s move follows a recent trend of UK-based pension funds opting to invest or increase allocations to private debt. This week, the Royal County of Berkshire Pension Fund confirmed it will increase its commitments to private debt, as well as other asset classes, following the Bank of England’s decision to reduce interest rates.

The Royal Mail Pension Fund’s latest annual financial statement showed an increase to the asset class in the financial year ending March 2016. Advisory firm Elian published a study revealing that a number of institutional investors are looking to increase their exposure to the asset class as a majority of the respondents had noted that investments had “exceeded expectations”.

NYPF manages the retirement funds for local authority workers and others in the education and voluntary sector. It manages around £2.5 billion of assets.