Pension lifeboat allocates £780m to alternatives

The UK’s PPF has sketched out a 20% allocation to alternatives, which will see the £3.9bn fund invest in private equity and infrastructure funds for the first time. It will retain exposure to real estate.

The UK’s Pension Protection Fund (PPF) has ring-fenced 20 percent of its £3.9 billion (€4.3 billion; $5.8 billion) in assets under management for alternative asset classes, including private equity, property, infrastructure and absolute return funds.

The move – announced yesterday – opens up a pool of $780 million for investment across the asset classes and comes less than a year after the PPF hired private equity specialist Guy Fraser-Sampson to advise on the fund’s investment strategy.

The PPF was set up by the UK government in 2004 to act as a safety net for the pension scheme members of companies that go out of business. Until these changes, announced in the fund’s Statement of Investment Principles, the fund has kept a majority of its portfolio invested in bonds, cash and equities, with its only alternative asset holding being a 7.5 percent allocation to real estate.

PPF chief investment officer, Ian McKinlay, told Reuters the fund was “very deliberately” aiming to differentiate itself from other pension schemes, which still tend to have very modest allocations to alternative asset classes.

He said the allocation would continue to encompass real estate.

The 20 percent alternatives allocation will not be divided strictly between the various alternative asset classes. This will allow the investment committee, led by CIO Ian McKinlay, to have greater flexibility over investment decisions, a spokesman for the PPF said.

The tender for private equity managers went out towards the end of 2009, said the spokesman, with manager appointments due to be made “in the near future”.

It has taken the fund two years to reach this stage, having identified in 2008 one of its most significant challenges as the development of a long-term investment strategy to ensure it remains appropriately funded as more schemes’ assets transfer to the PPF.