Chancellor Jeremy Hunt’s landmark Mansion House speech last year set in motion several major consultations regarding the UK pensions sector – many of which are now on hold ahead of the general election next month.
One that has not been affected by political machinations is the drive for increased investment in UK growth assets, or “productive finance”.
The Border to Coast Pensions Partnership – which manages £40.3bn on behalf of 11 Local Government Pension Schemes (LGPS) – launched a UK Opportunities strategy earlier this year that supports this aspect of the Mansion House reforms.
It has raised £500m from the pool’s clients for the strategy, and its innovative multi-asset approach saw it take home the LGPS Innovation award at last month’s Investment Innovation Summit, as well as the Audience Award.
A long-term project
Border to Coast’s private markets programme was first launched in July 2019 with £1bn of commitments. At the time, the pool targeted £10bn in total – but it has since significantly exceeded this total.
Mark Lyon, deputy chief investment officer at Border to Coast Pensions Partnership, tells Pensions Expert that the pool has now raised £16bn of commitments from its partner funds to its private markets platform, equivalent to approximately 10% of the total assets managed by its 11 clients.
Of this £16bn, £12bn has been deployed and £6bn is “in the ground” and invested, Lyon says.
This track record means Border to Coast is no stranger to investing in infrastructure or real estate, but the UK Opportunities strategy marks the first time it has focused its efforts closer to home in a multi-asset approach.
Making an impact
“We wanted this to be a broad UK, new productive capital, positive impact strategy,” Lyon explains. “Clearly, there is a huge supply-demand imbalance in UK housing, both social and affordable, but also for care homes and retirement living. There is the potential to not only identify attractive investment opportunities but have a real-world positive impact as well.”
Similarly, within the infrastructure space, while it is not the first time Border to Coast has allocated to UK assets, the new strategy will look at smaller scale projects such as digital connectivity, or education or health-related assets.
Lyon emphasises that all assets entering the strategy must have an element of “additionality” through delivering a real-world positive impact. However, the pool has not set specific impact targets.
“Each investment has to stand alone on an investment basis, and then any positive impact that comes off the back of that is great,” he says. “Any investment we target must have a positive impact, or we must expect there to be a positive impact, but we’re not necessarily too concerned with the scale of that impact.”
Venture capital opportunities
One aspect of the new strategy that feeds directly into one of the Mansion House goals is the consideration of venture capital opportunities.
In November, the government announced a £250m investment into new vehicles under its Long-term Investment for Technology and Science, or LIFTS, initiative. Schroders and ICG were awarded the first mandates, worth £125m each.
On top of this, the government also committed £20m to “foster more ‘spin-out’ companies” – firms launching from university research – and £50m to the British Business Bank to support its work investing in innovative startups.
At Border to Coast, Lyon explains that the pool is also looking to support spin-outs and venture or growth capital, which typically require much smaller investments.
Lyon says: “The UK ranks fourth on the Global Innovation Index, but we feel it can do more. There is lots of really good stuff coming out of university spin-outs and things like that.
“But at the moment there isn’t that broader ecosystem to take a spin-out company into growth capital, and then ultimately to an IPO. That is certainly our perception. We are hoping some of our capital will help facilitate the development of that ecosystem.”
