Border to Coast, the UK’s LGPS pool for 11 partner funds, is planning to launch a new UK opportunities strategy that will invest in private markets opportunities in-country, including venture and growth. The allocation will sit in Border to Coast’s existing £12 billion private markets allocation that includes £4.3 billion in infrastructure and £3 billion in private equity.
The multi-asset UK strategy will target areas such as corporate financing, housing, property, infrastructure, renewables, and social bonds. The nature of underlying investments will also result in a range of positive impacts, including jobs created, new housing units delivered (residential, affordable, social, assisted), new commercial floor space, delivery of local infrastructure, renewable energy capacity and the provision of training including apprenticeships.
Subject to ongoing engagement with its partner funds the UK opportunities strategy will launch in April 2024.
“I am particularly pleased with the team’s work with partner funds on our innovative ‘UK opportunities’ strategy, which will facilitate investment leading to the generation of a range of positive local impacts, such as new jobs, infrastructure, and economic growth across the regions of the UK, while providing returns to fund pension obligations,” said chief executive Rachel Elwell, who has overseen the build out of the organisation to 130 employees and £47 billion of pooled assets (of the £60 billion in total funds between the underlying partners) since it was set up five years ago.
The move comes as the British government puts pressure on pension funds to invest more at home to support economic growth. Today, UK pension funds invest almost £1 trillion in the UK through a mixture of UK shares, corporate bonds, government debt, and other asset classes.
Investing more in the UK for growing LGPS and DC funds like NEST may make sense, but for many DB funds it’s not that simple. Many are still reeling from last year’s gilt crisis when the market froze over, and it was impossible to trade. The unprecedented volatility in gilts has seen these funds build new risk models into their portfolios that incorporate much bigger moves in gilts prices. This in turn has implications for how much they are prepared to invest in illiquid assets, running counter to the government push.
In a recent paper, industry body PLSA identified 10 ways to encourage UK pension funds to invest more at home. ‘Pensions & Growth: A Paper by the PLSA on Supporting Pension Investment in UK Growth’ suggests fiscal incentives, policy certainties and increased automatic enrolment contribution levels would help.
Border to Coast is midway through designing two global and two UK real estate propositions. They will lead to further increases in the level of assets under management and are expected to launch later this year. Other new strategies on the horizon include the development of a second climate opportunities portfolio. The investor currently has £1.4 billion invested in climate opportunities.
efficiency gains of Pooling
Border to Coast has pooled 83 per cent of assets owned by its 11 LGPS partner funds, with pooling on target to deliver savings of £340 million by 2030. Meanwhile, research by asset management data company ClearGlass Analytics into value for money, ranked Border to Coast number one in its efficiency scheme index of over 1,000 pension schemes. The analysis showed its leading position is due to its scale, governance and its blend of internal and external management.
About a third of assets are managed internally, a third externally and a third in a hybrid model for private markets where Border to Coast is selecting funds but acting as a fund of funds managers.
“Five years into our journey, we are exceeding the original ambitions for pooling,” said Chris Hitchen, chair of Border to Coast. “With 83 per cent of our partner funds’ assets pooled we have been able to deliver over £65 million of savings net of set up costs with more to come. But perhaps more importantly, we have built a sustainable centre of expertise in Leeds delivering innovative and effective investment solutions for our partner funds.”