Pension scheme risk management solution provider Pension Corporation is set to invest part of its £6bn portfolio in more one-off loans to companies in sectors hit by a lack of lending from banks.
Speaking to
portfolio institutional, co-head of asset-liability management Mark Gull
(pictured) said institutional investors were perfectly suited to providing capital for projects such as social housing.He explained: “We get certainty of execution and because it is a smaller and illiquid deal we are getting a higher yield than in the public market and can work through to make sure we get the covenants and security features we like.”This comes after the insurer announced in September it had directly funded Raglan Housing Association as the sole buyer of a £50m bond issue. The funds, it said, will be used by Raglan to build new houses across the country.“Someone like Raglan wanting to borrow that sum of money cannot go to public bond markets as they are not big enough, however we are now of a size so it is worth the work and structuring for a deal of £50m,” said Gull.“We are building up our team internally to make sure we have the right skills to do that and we think we will do more bi-lateral deals where one-off opportunities exist.”Indeed, opportunities are arising in this space as banks are deleveraging and stepping away from long-dated funding because regulation, such as Basel III, is making it more expensive for banks to write long-dated loans. Sectors that have been traditional users of bank funding, such as social housing and SMEs, are finding it hard to get that funding.Gull also said Pension Corporation – who has taken onboard some £1.2bn in assets so far this year – was looking to manage more assets in-house as it grows.Social housing, along with other forms of infrastructure, has been discussed by pension funds as a way of offering long-dated index-linked returns to match their liability profile.“We would love to get involved in the infrastructure debt market if and when it takes off. The assets are fantastic for us because they are long-dated, very secure once you have got past the construction risk, and are crucially investment grade,” added Gull.Elsewhere, Universities Superannuation Scheme (USS) Investment Management recently announced it had provided £100m of 25-year inflation-linked financing to South East Water Finance via the private placement of an index-linked note.
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