British Pension Pool Picks Managers for New Corporate Bond Fund

A UK public pension pool has chosen managers for its global investment-grade corporate bond fund.

The Local Government Pension Scheme Central’s bond fund will be run by Fidelity and Neuberger Berman’s Europe division. The two were picked from a crop of 70 managers.

Each manager will be responsible for half the mandate, which was not disclosed. However, the plan launched a £2 billion ($2.6 billion) corporate bond fund in November, which was part of the fund’s plan to roll out various pooled fixed income funds in 2019. The fund was looking for active managers who could perform a “consistent, robust, repeatable investment process” in addition to a “low cost, fully transparent, value for money” offering, according to the tender.

Gordon Ross, LGPS Central’s fixed income director, said the retirement consortium chose Fidelity and Neuberger for their “global reach as well as their strong presence in the UK.” He echoed the tender’s requirements, mentioning that the managers follow “robust processes that are repeatable across all credit markets.”

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One of Neuberger’s “robust processes” is its outperformance of the global credit/corporate bond index, Alex Gitnick, a portfolio manager at the firm, told CIO. “That’s based on the nature of a process where we add value primarily through bottom-up stock selection … and trying to avoid deteriorating stories [which] could lead to potential very destructive downgrades,” he said.

Gitnick declined to comment on deal-specific details.

The plan has already launched four pooled equity funds. It had been given regulatory approval in January. LGPS Central is monitored by the Financial Conduct Authority, one of the nation’s top regulators.

LGPS Central manages $57.8 billion of assets from nine midlands-based Local Government Pension Scheme funds (Cheshire, Derbyshire, Leicestershire, Nottinghamshire, Shropshire, Staffordshire, Worcestershire, West Midlands Pension Fund, and the West Midlands Integrated Transport Authority). An LGPS is a pension collective that lumps several retirement plan assets into one big plan that handles their investment responsibilities. It is one of eight LGPS operations in the UK.

Fidelity was unable to be reached for comment. The LGPS Central declined comment.

Tags: Fidelity, LGPS Central, Neuberger Berman

Jeremy Wolfson

After setting up a $400 million private equity pacing plan for the year, the Los Angeles Water and Power Retirement Plan’s Chief Investment Officer Jeremy Wolfson discussed the pension’s strategy for its relatively new private equity program.

“It’s still a young portfolio experiencing some j-curve,” Wolfson told CIO of the 12-year-old allocation, “however, having the dry powder to deploy during various economic and market environments, instead of simply having to recycle distributions, has enabled us to perform very well over the years.”

The new pacing plan calls for $400 million across four to seven partnerships, with each commitment valued between $50 million and $125 million throughout the year. “We take calculated but slightly more concentrated risk by typically investing in larger bite sizes with less funds and GPs,” Wolfson added.

“This overall portfolio construction thesis has resulted in generating more alpha instead of having a large number of smaller investments that could result in simply receiving private equity beta exposure, which could limit our ability to move the needle in any material way.”

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The retirement fund’s total fiduciary net position for the retirement fund measured at $12.3 billion as of its latest annual report dated June 30, 2018. The private equity program generated one-, three-, and five-year returns of 12.67%, 9.77%, and 11.22%, respectively, at that time. Its private equity pacing plan to maintain the allocation as close as possible to the 8% target is illustrated below:

“Our focus late cycle is to continue to deploy capital with high conviction GPs that have proven their ability to create value over multiple cycles with less or limited leverage in the middle market and small-cap buyout space,” Wolfson said. “We also look for co-invest opportunities with the right partners to enhance overall deal economics.”

In 2018, commitment activity for the portfolio was “within target,” according to a report from the pension. It committed $63 million to Crestview Partners IV, $85 million to Harvest Partners VIII, $22.5 million to Industry Ventures Special Opportunities Fund III, and $75 million apiece to Lexington Capital Partners IX and Vista Equity Partners Fund VII.

“Although we invest globally, we’re still fairly US-centric. We still believe in US fundamentals but are sensitive to late-cycle investment strategies that are slightly more defensive and idiosyncratic. We will also continue to look for non-US opportunities as we look to diversify our exposures.”

Private equity is gearing up to be a relatively more robust sector than it is today, with pensions such as the California Public Employees’ Retirement System (CalPERS) creating proprietary platforms to invest in the asset class.

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Tags: Jeremy Wolfson, Los Angeles Water and Power Retirement Plan, Pension, Private Equity