PPF achieves 11.75% return on alternative credit portfolio

The UK-based pension scheme raised total AUM to £32bn as it began the processing of undertaking more private credit operations in-house.

The Pension Protection Fund (PPF), the organisation set up by the UK government to rescue members of collapsing private pension schemes, achieved 11.75 percent on its alternative credit allocation over 12 months making it the fund’s second-best performing asset class for the year ending 31 March.

The PPF is targeting a goal of being financially self-sufficient by 2030 and continues to grow its assets under management. Current AUM is £28.7 billion ($37 billion; €32.4 billion)  and it is aiming to reach £32 billion by 2020.

Total allocation to alternatives stands at 22 percent, while the majority of the PPF’s investments are in cash and bonds (58 percent). Hybrid assets, which include infrastructure debt and real estate debt, stand at 12 percent and equities at 7 percent.

According to the PPF’s website, the alternative credit portfolio is managed by Apollo, Ares, Avenue Capital, BlueMountain, GSO, Oaktree and York Capital Management. The PPF targets a range of private debt strategies, including senior loans, leveraged loans, distressed and mezzanine debt.

Alan Rubenstein, chief executive of PPF, said: “We’ve had a successful year and we continue to make steady progress towards our strategic objectives.

“Our robust strategy has put us in a good position to manage the uncertainties ahead and our long-term risk model predicts that we will achieve financial self-sufficiency by 2030 in 93 percent of scenarios,” he added.

Last month, the PPF published its three-year strategic plan on how it will tackle key issues such as funding, risk and customer services. Among its goals is to bring more services in house, including the private and public market credit portfolio as its seeks to weather growing external risks in the macro-economic environment.

“One of the biggest risks affecting the PPF is the future performance of the UK and global economies. There are a number of major uncertainties facing world markets at present and Brexit makes the outlook for the UK particularly unclear,” the report said.

The move is part of a cost-cutting drive set out by the PPF, which is aiming for a reduction in fund manager fees across the board. The report outlined a target of dropping from 0.54 percent average management fee to 0.43 percent over the next three years.

“We remain focused on delivering efficiencies through enhancements to our internal infrastructure,” the report said.

The PPF was set up following the passing of the Pensions Act in 2004. The organisation provides protection for members of defined benefit schemes run by employers that have gone out of business by paying out compensation to members. Approximately 235,000 people are enrolled into the scheme.

A representative for PPF was not available for comment before publication.