Strathclyde approves £750m of new credit investments

The £15bn Scottish pension fund has picked managers including Babson and Oak Hill for new credit mandates in a private debt investment push.

Strathclyde Pension Fund, one of the UK’s largest pension investment managers, has approved £750 million of commitments to debt managers, including Babson Capital and Oak Hill Advisors, as part of a drive to increase its private credit assets to 15 percent of the portfolio.

The Glasgow-based pension fund with over £15 billion in assets said it had appointed Babson Capital and Oak Hill Advisors to manage multi-credit mandates of £300 million and £150 million respectively.

The fund said it would also be investing £150 million in Alcentra Clareant European Direct Lending Fund II and £150 million in Babson Global Private Loan Funds.

The investments were approved at Strathclyde’s committee meeting on 7 March.

The new mandates form part of a drive at the pension fund – dubbed Alt 1 – to increase so-called short-term enhanced yield (STEY) assets, to 15 percent of its overall portfolio. The fund currently has 8.1 percent of its total assets in the strategy through a mandate with PIMCO and fund investments with Renshaw Bay Real Estate, Scottish Loan Fund, Healthcare Royalties Partners, Muzinich and Markham Rae Trade Capital.

Strathclyde potentially wants to start increasing the proportion of STEY assets in its portfolio to 20 percent within three years, and onwards to 30 percent in the longer run. At the same time, it will increase long-term enhanced yield assets, such as private equity and infrastructure, to the same levels, while reducing the proportion of listed equities in order to achieve a less volatile long-term return.

According to recent committee meeting minutes, Strathclyde and its consultant Hymans Roberston expect a typical mandate to focus on high-yield and syndicated loans, along with a variety of more liquid allocations and some distressed and emerging market debt. Such mandates are expected to return LIBOR plus 4 percent a year, net of fees.

The pension fund also made amendments to its existing investment mandate with US investment manager PIMCO to target higher-returning strategies, and agreed two new fund investments.

Strathclyde’s £150 million commitment to the Babson funds will be split between a £35 million investment in the Babson Global Private Loan fund and a £115 million ticket for its successor fund, due to launch the following quarter. 

In addition, Strathclyde approved a £50 million UK infrastructure investment with Pensions Infrastructure Platform Multi-Strategy Infrastructure LP, £20 million for technology investment in Scottish Equity Partners fifth fund and £25 million with Clydebuilt Fund to invest in commercial property in west Scotland.