U.K. Pension Protection Fund Targets Secondaries

The U.K. Pension Protection Fund (PPF) plans to enter the private equity market through secondary purchases.

The £4 billion ($6.1 billion) fund, which manages the defined benefit pension schemes of collapsed businesses, has recruited seven private-equity secondary managers to a panel advising it on potential investments.

Goldman Sachs, Hamilton Lane, Lexington Partners, LGT Capital, Partners Group, Pantheon Ventures and RREEF, a unit of Deutsche Bank, have been appointed to the PPF panel. These managers will allow the PPF flexibility to take advantage of secondary market opportunities as they arise.

The PPF is recruiting these managers as part of its new Statement of Investment Principles, which announced last month a 20 percent (approximately $1.2 billion) target allocation to alternative investments including private equity, infrastructure and property investments. The PPF also has a mandate to invest around the world.

Overall, the fund plans to maintain a relatively 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.

The total amount allocated to private equity within the alternatives allocation is undisclosed. The PFF anticipates growing opportunities in the secondary market, but no secondary funds have been identified as yet, said a spokesperson for the PPF. The team is still identifying the best time to generate the highest returns in the sector, he said.

While the primary fundraising market was slow in 2009, secondary funds actually had a record year. Nineteen vehicles reached a final close with $23 billion raised in total, according to data provider Preqin. Goldman Sachs closed a $5.5 billion secondary fund in April 2009, which is the biggest dedicated secondaries fund closed to date, Preqin noted.

The PPF was set up under the provisions of the Pensions Act 2004 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.