U.K. Fund To Make Private Equity Debut

The U.K. Pension Protection Fund (PPF) is ramping up to make its maiden fund commitments following the introduction of a 20 percent (approximately $1.2 billion) target allocation to alternative investments.

The £4 billion ($6.1 billion) fund, which manages the defined benefit pension schemes of collapsed businesses, is adjusting its portfolio allocation model by reducing its exposure to listed equities and introducing a new allocation to alternative assets, including private equity, infrastructure and property investments. The PPF also has a mandate to invest around the world.

PPF Chief Executive Alan Rubenstein said the fund plans to maintain its low-risk approach to investments, with at least 65 percent of the portfolio invested in cash and bonds, 20 percent dedicated to alternatives, and the remaining 10 percent reserved for public equity.

According to a statement of investment principles adopted by the fund, the PPF’s priority will be to generate a higher return for its clients by diversifying into additional asset classes but with the same level of risk as before. The aim of the fund is to outperform its benchmarks during the year by 1.8 percentage points, rather than the current target of 1.4 percentage points.

In a prepared statement Rubenstein said: “Our portfolio is nearing the £4 billion mark, which means we now have far more opportunity to diversify our assets and greater buying power than ever before. Some investment markets are easier to access if you are a larger investor and the costs of that access come down too.”

A spokesperson for the PPF declined to comment on the breakdown of allocation within alternative investments, stating it was too early to specify details and noting that the fund is still waiting to confirm its private equity fund managers.

The Pension Protection Fund was set up under the provisions of the Pensions Act 2004 in April 2005 and is classified as a public financial corporation. It has been established to pay compensation to members of eligible defined-benefit and hybrid pension schemes when they have insufficient assets.