Border to Coast, a UK Local Government Pension Scheme (LGPS) pool serving 11 partner funds, is set to introduce a novel UK opportunities strategy. This strategy will channel investments into domestic private market opportunities, including venture capital and growth sectors. The funds will be part of Border to Coast’s current £12 billion private market allocation, which comprises £4.3 billion in infrastructure and £3 billion in private equity.
The UK strategy, a multi-asset initiative, will focus on sectors like corporate financing, housing, property, infrastructure, renewables, and social bonds. The investments will generate a variety of positive outcomes, such as job creation, delivery of new housing units (across residential, affordable, social, assisted categories), new commercial floor space, local infrastructure development, renewable energy capacity, and training provision including apprenticeships.
The UK opportunities strategy is set to launch in April 2024, subject to continuous engagement with its partner funds.
Rachel Elwell, the Chief Executive, expressed her satisfaction with the team’s work on the ‘UK opportunities’ strategy with partner funds. She highlighted that the strategy would stimulate investments that generate a range of positive local impacts like new jobs, infrastructure, and regional economic growth in the UK, while also providing returns to meet pension obligations. Elwell has overseen the organization’s expansion to 130 employees and £47 billion of pooled assets (out of the £60 billion total funds among the underlying partners) since its inception five years ago.
This initiative coincides with the British government’s push for pension funds to increase domestic investments to boost economic growth. Currently, UK pension funds invest nearly £1 trillion in the UK through a blend of UK shares, corporate bonds, government debt, and other asset classes.
While it may be logical for growing LGPS and Defined Contribution (DC) funds like NEST to invest more in the UK, the situation is more complex for many Defined Benefit (DB) funds. Many are still recovering from last year’s gilt crisis, which caused market freezing and trading impossibility. The unprecedented gilt volatility has led these funds to incorporate new risk models into their portfolios, accounting for significant gilt price movements. This has implications for their willingness to invest in illiquid assets, contradicting the government’s push.
A recent paper by the industry body PLSA outlined ten ways to encourage UK pension funds to invest more domestically. The paper titled ‘Pensions & Growth: A Paper by the PLSA on Supporting Pension Investment in UK Growth’ proposed fiscal incentives, policy certainties, and increased automatic enrolment contribution levels as potential solutions.
Border to Coast is currently designing two global and two UK real estate propositions. These are expected to further increase the level of assets under management and are slated for launch later this year. Other upcoming strategies include the development of a second climate opportunities portfolio, with the investor already having £1.4 billion invested in climate opportunities.
Border to Coast has pooled 83% of assets owned by its 11 LGPS partner funds, with the pooling expected to yield savings of £340 million by 2030. ClearGlass Analytics, an asset management data company, ranked Border to Coast first in its efficiency scheme index of over 1,000 pension schemes based on value for money. The analysis attributed its leading position to its scale, governance, and a mix of internal and external management.
Approximately a third of assets are managed internally, a third externally, and a third in a hybrid model for private markets where Border to Coast selects funds but acts as a fund of funds managers.
Chris Hitchen, Chair of Border to Coast, stated, “Five years into our journey, we are exceeding the original ambitions for pooling. With 83% of our partner funds’ assets pooled, we have been able to deliver over £65 million of savings net of setup costs, with more to come. More importantly, we have established a sustainable expertise center in Leeds, delivering innovative and effective investment solutions for our partner funds.”
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