PPF boosts alternatives allocation, targets infra debt

The UK’s £22bn Pension Protection Fund is introducing a ‘hybrid assets’ investment strategy, made up of illiquid assets with hedging characteristics.

The Pension Protection Fund (PPF), which pays out the pensions of UK workers when their employers go bust, has amended its investment strategy to target higher returns and better match its long-term liabilities.

The institution has added a ‘hybrid’ category to its list of ‘permitted’ asset classes, which it said will comprise illiquid assets with inflation hedging characteristics. Due to represent 12.5 percent of the portfolio in the long run, these include assets such as real estate leases, infrastructure debt, corporate index-linked bonds and direct lending, according to reports.

“The revisions are consistent to our approach to risk, continued 2030 goal and also reflect the long term nature of our liabilities. We are now allocating more of our capital to less liquid assets where we also receive excess return and liability matching properties,” commented Barry Kenneth, chief investment officer at the PPF, in a statement.

The fund has also increased its allocation to alternatives from 20 percent to 22.5 percent. These include property, private equity, alternative credit, infrastructure, farmland and timberland, and absolute return strategies.

In January 2013, chief executive Alan Rubenstein announced that PPF, which has about £22 billion (€27.8 billion; $37.7 billion) under management, is considering investing 5 percent of its portfolio in infrastructure funds. It has since made a £100 million soft commitment to the Local Government Infrastructure fund.

The PPF, set up by the UK government in 2004, provides compensation to subscribers of defined benefit pension schemes when their employers turn out to be insolvent and when there aren’t enough assets in the scheme to compensate members to the promised level.

It is funded by an annual levy paid by eligible pension schemes and recoveries of assets from insolvent employers, as well as returns on the assets of pension schemes transferred to it and on its own investments.

The fund did not respond to requests for comment before press time.