Strathclyde Pension Fund has approved more than £130m of investment in alternative assets such as wind farms and trade finance, as it explores niche investments.
The desire for diversified returns and yield in the low-rate environment has led to the emergence of a wide range of niche assets in areas such as renewable energy and shipping, but experts have pointed to the need to be conscious of transparency and value.
In a meeting last week, members of Strathclyde’s Pension Fund Committee approved an investment of £50m in offshore wind, £30m in onshore wind, £33m in trade finance and £20m in UK private debt.
What is driving the return? Is this sustainable? Is it a temporary phenomenon or is it structural? There needs to be conviction in the rationale
Aniket Das, Redington
The investments were made as part of the scheme’s ‘new opportunities’ portfolio, an allocation of more than £300m dedicated to investing in niche assets that are unlikely to fall within its other mandates.
Schemes have been investing in previously overlooked asset classes such as shipping or infrastructure in the hope of uncorrelated yield and illiquidity premia.
The investments often also promise a social benefit, including affordable housing and supported living projects.
The portfolio was established in 2009 and has no set remit of how much to invest and when.
Colin MacKenzie, public relations officer for the scheme, said: “The figure tends to vary, depending on flow. There were three in 2013, nine in 2014 and the four approvals at [last week’s] committee mean we are now sitting at five for 2015.”
Strathclyde is also considering lowering its derisking trigger to a funding level of 105 per cent from 110 per cent, alongside opportunities in short-term enhanced-yield strategies, said MacKenzie.
“The fund is working on a number of options in each of these areas,” he said. “We anticipate bringing firm proposals to a future meeting of the committee later this year – probably around September.”
Barriers to access
Schemes are often hesitant to invest in niche assets due to the difficulty faced identifying value in unfamiliar areas.
Aniket Das, senior vice president of manager research at investment consultancy Redington said: “Understanding of the opportunities [is] key. What is driving the return? Is this sustainable? Is it a temporary phenomenon or is it structural? There needs to be conviction in the rationale.”
Das added schemes should also consider evidence of the investment manager’s ability to model risk and return for esoteric asset classes.
Nicola Ralston, co-director at investment consultancy PiRho, said niche alternatives were also sometimes difficult to access for smaller funds.
“They’re very much the purview of very big funds and they’re very specialised. So they’re not something we come across,” she said.
Celene Lee, senior investment consultant at Buck Consultants, said many schemes prefer to invest through cheaper, more diversified options.
“For the more typical pension fund… those would have very little [ability] to go and invest in a single asset class," she said.
"What typical pension schemes tend to do is access alternative investments through a pooled fund… the cost for pension schemes to access them individually would be pretty impossible.”
However, Lee said that while cheaper, the pooled approach sacrificed transparency and control over the individual assets.
