bfinance appointed to conduct manager search and selection for first private debt investment by five London LGPS

This will be the Five Boroughs’ first investment in private debt, with the Ealing-led search for an asset manager commencing on 29 March 2018. All five boroughs are part of the London Pension Collective Investment Vehicle (London CIV) pool, which has not yet launched a private debt investment programme.

Specialist investment consultant bfinance is conducting the manager search and selection for this new private debt allocation, while JLT Employee Benefits is working with the Five Boroughs and bfinance on the design of the mandate. The investment size is currently expected to be £250 million, however this may increase if additional London boroughs become involved. The Five Boroughs have total assets under management of approximately £4.5 billion, meaning that the new private debt investment will represent around 5% of their combined portfolios.

The appointment of bfinance and JLT Employee Benefits to implement the allocation forms part of the five boroughs’ strategy of improving investment returns for local government pension schemes (LGPS) in London by exploring opportunities in private debt. Improving yields and achieving stronger risk-adjusted returns are among the key priorities for LGPS Funds, and this has led to an increased interest in private debt, which is set to continue in 2018.

Private debt has become an important market for many investors since the 2008 financial crash due to its spread over investment grade fixed income, low correlation with other asset classes, stable performance through market cycles and its increasingly broad, mature universe of asset managers.

bfinance has worked with 41 of the leading local government pension schemes in the UK, representing in excess of 50% of total assets under management. Internationally, bfinance has provided over 70 public pension funds with specialised bespoke advisory support.

Bridget Uku, Group Manager Treasury & Investments at the London Borough of Ealing Pension Fund, commented: “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.

Sam Gervaise-Jones, Head of Client Consulting, UK & Ireland at bfinance, said: “We look forward to working with JLT to advise these five London boroughs on their first private debt investment. bfinance has an exceptionally experienced private debt team, and we will use our proven expertise advising LGPS funds to deliver bfinance’s unique, sophisticated solutions to these boroughs. Private debt has seen a steady increase in demand in recent years, aided by an ultra-low yield environment and periods of volatility in Europe’s public bond markets since the financial crisis. By collaborating with their peers, and combining the benefits of private debt investment with the wide benefits that collaboration can offer, these boroughs can achieve significant cost savings and improved control.”

Kieran Harkin, Head of LGPS Investment Consulting at JLT, said: JLT is delighted to be working with the London Boroughs to design an overarching mandate that also caters for the specific requirements of each Fund. We are also pleased to be working together with bfinance and this project demonstrates the importance of strong collaboration across the LGPS.