Willis Towers Watson expands FoF strategy with new fund launch

Following the success of its sterling-denominated fund that has raised £1bn to date, the London-based firm is launching a similar vehicle that will be available to the broader European market.

Willis Towers Watson has launched the Euro Secure Income Fund with a view to giving Euro-denominated pension funds access to infrastructure and real estate assets in the Netherlands, Germany, Ireland, France and Spain.

The launch of ESIF comes as the London-based firm has raised £1 billion ($1.3 billion; €1.2 billion) for its Secure Income Fund, an open-ended vehicle it launched in March 2017.

“The cornerstone of the product is to focus on diversification,” Duncan Hale, portfolio manager at Willis Towers Watson for the SIF and ESIF, told Infrastructure Investor. “We’re probably targeting between 50 and 60 percent real estate and 40 to 50 percent infrastructure. We do have the ability to do real asset debt, but at this point in the cycle, we don’t necessarily think there’s a lot of value there.”

Asked which sub-sectors within infrastructure ESIF will target, Hale said it would include social infrastructure, renewables and to a smaller extent, utilities.

“What we’re trying to achieve through both funds, is investing into assets that have the following characteristics: long-term, stable, contracted cash flows, we’re confident will materialise either because there is a robust counter-party in place (so in the context of a PPP that’s often the government, but it could be corporate PPAs for instance) and/or there’s tangible financial backing in the asset,” Hale said.

The firm is targeting nominal returns ranging between 4-4.5 percent for low-risk real estate strategies and up to 8-9 percent for infrastructure strategies.

Sustainability will also remain a critical factor in ESIF as it has been in the Secure Income Fund.

“One of the things that we’re really focused on whether we’re talking about SIF or ESIF, is we’ve got these long-term cash flows and these are long-term assets, so it’s important in ensuring these assets are robust, that we’re adding value to society broadly,” Hale explained.

“Investing in solar energy alongside Greencoat Capital and being able to show that we’re adding value in terms of helping decarbonise the energy mix is an example. Investing into Cory [Riverside Energy] which diverts rubbish from landfills and manages that in a more environmentally-conscious way, is another,” he said, referring to the energy from waste company Willis Towers Watson has invested in alongside Dalmore Capital. Other investments in SIF’s portfolio include UK high-speed railway HS1 and rolling stock concession Intercity Express Programme Phase 1 (IEP).

Unlike SIF, which was available to UK defined benefit pension schemes only, the new fund will be more broadly available.

“The fact that SIF was only available to UK DB pension funds was very much a nuance, particularly due to UK tax law that provides UK DB schemes with a certain tax status,” Hale explained. “So, SIF was set up specifically to ensure that the UK DB pension schemes got the tax advantages that they were due on the basis of their status.”

According to Hale, SIF is just over 80 percent deployed, but the firm plans on continuing to raise an additional £1 billion-£2 billion for the vehicle. It is targeting the same amount for ESIF.

“We’re very happy with where SIF has got to in terms of size and its growth trajectory,” Hale said. “One of the things we’re always mindful of is being able to invest our clients’ commitments in an appropriate timeframe. I think what we found with SIF, which raised £1 billion over roughly two years, was that we were able to invest that money in a six to 12 month-period. Our expectation is that ESIF would get to that €1 billion mark over the next one to two years – in a similar timeframe to SIF and in the same measured way.”