The Royal Mail Pension Plan (RMPP) is eyeing a move into private debt as it revamps its investment strategy after transferring most of its assets to the Government.
Speaking to
portfolio institutional, Royal Mail Pension Trustees chief executive Gerry Degaute described private debt as “a good spend of our risk budget and a question of diversification”, but said the fund had not yet decided whether it will access the asset class directly or through a fund of funds.Degaute said: “Private debt is to credit what private equity is to listed equity… it is looking at other buckets for the return-seeking space which potentially, given our smaller size, is easier to do now.”The move comes as part of a wider diversification push by RMPP following the completion of the ‘pension solution’ – part of the Postal Services Bill 2011 – which saw the £34bn fund transfer about £28.5bn to the Government resulting in a significantly smaller but fully-funded £2.5bn scheme.The assets were transferred at midnight on 31 March, at which point the Government took over all the liabilities of the pensioners, deferred and active members as part of the newly-created Royal Mail Statutory Pension Scheme.Degaute said: “At this point because the solution has just happened we are in the process of looking at funding an investment for this new plan. We are engaging with the new company to agree funding and consulting them on investment, so at this point things aren’t formulated.”The shape of the new plan will depend heavily on a forthcoming covenant review of the business, the result of which will be published later this year.The fund – which receives about £500m in annual contributions – is also interested in the infrastructure initiative backed by the National Association of Pension Funds and the Pension Protection Fund, but Degaute said it has reservations about the lot size and its attractiveness as a liability hedge will depend on pricing relative to swaps and linkers which are currently expensive.Degaute added: “At £30bn making an investment of £100m was less than 1% of the fund, but now at £3bn – once we have the cashfl ow on the books – a cheque for £100m is quite a slug. We will have a look at that but it is too early to say if we will do it or not.”RMPP is also planning to revisit hedge funds despite previously dimissing it as “opaque, the fees were extremely high and the numbers weren’t proven”.
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