Analysis: UK pension schemes are among the institutional investors across Europe that have maintained a strong focus on alternatives, particularly infrastructure, as investment activity picked up in November, according to MandateWire data.
Investment activity in terms of expressions of interest* and executed investments** across broad asset classes increased by almost 70 per cent in November, compared with the previous month.
The biggest month-on-month increase in investment activity was seen in equities (164 per cent), followed by fixed income (86.7 per cent), and alternatives (51.6 per cent).
However, alternative asset classes were the most sought-after, accounting for 43.5 per cent of all planned and executed investments in November, down from around 48 per cent in October.
We set an ambitious target for where we want to be for achieving decarbonisation and hitting net zero
Paul Guilliotti, Wandsworth Pension Fund
Infrastructure was popular in November
Income-generating alternatives – namely property, infrastructure and private debt – accounted for more than half (57.4 per cent) of planned and executed investments in non-traditional asset classes in November, compared with 80.6 per cent in the previous month.
Infrastructure was the most sought-after alternative asset class, accounting for around 30 per cent of all planned and executed investments in non-traditional assets last month, about the same share recorded by MandateWire in October.
Among the asset owners boosting their exposure to infrastructure was the £44.1bn Pension Insurance Corporation, which committed to invest £200mn in One Eastside, a 154m tall, build-to-rent skyscraper in central Birmingham.
Delphine Deasy, PIC’s head of build-to-rent, said: “The 667-apartment development will have a positive effect on the local economy, including creating hundreds of new job opportunities and supporting the training of local students.
“At the same time, it will provide long-term, secure cash flows to back our policyholders’ pension payments in the decades ahead. We are actively engaged on a number of similar opportunities across the UK and have a strong pipeline going into 2023.”
Private equity was the second-most targeted alternative, accounting for just over a quarter of all planned and executed investments in alternative assets last month, up from 16 per cent in October.
‘A good tool to help us show meaningful impact’
Equities accounted for more than a quarter (27 per cent) of all expressions of interest and executed investments in November, compared with 17.2 per cent in the previous month. The increase in activity last month was driven by a more than eightfold rise in the number of equity manager searches compared with October.
Fixed income represented around a quarter (26 per cent) of all planned and actual investments in November, up from 23.4 per cent in October. Higher-yielding bond instruments accounted for about a third of fixed income demand.
Demand for sustainable investments rose in November, with environmental, social and governance-related investment activity representing less than a third (31.5 per cent) of total investment activity, compared with a quarter in the previous month.
LGPS funds pile into illiquid alternatives amid soaring inflation
Data crunch: Local authority schemes have committed more than £10bn to illiquid alternatives in 2022 as the hunt for inflation-linked cash flows and attractive returns intensifies, according to MandateWire data.
The £2.9bn Wandsworth Pension Fund, incorporating assets of the Richmond Pension Fund, plans to invest £50mn to £80mn across two sustainable infrastructure funds: the Octopus Energy Transition Fund and the Sandbrook Climate Infrastructure Fund, managed respectively by Octopus Energy and Sandbrook Capital.
Noting that joint pension committee members were “keen” to support a transition to renewable energy, assistant director of resources Paul Guilliotti told MandateWire: “We set an ambitious target for where we want to be for achieving decarbonisation and hitting net zero, and this is a good tool for us to be able to show meaningful impact.”
*Expressions of interest comprise manager searches, planned investments in a new asset class, and planned investments in existing asset classes recorded by MandateWire in November 2022.
**Investments comprise the number of awarded mandates and asset reweights tracked and reported on by MandateWire in November 2022.
An earlier form of this article originally appeared on MandateWire.com
