Global credit funds & CLO's
January 2020
| Issue 219
Published in London & New York.
Copyright Creditflux. All rights reserved. Check our Privacy Policy and our Terms of Use.
January 2020
|
Issue 219
News
Managers acquiesce on fees as small UK pensions seek private credit nest egg
Sofia Karadima
Acuris
Private credit fund managers are rejigging their fee structures in order to attract small UK pension schemes. This follows a move by Nest, a £5.7 billion ($7.5 billion) UK corporate pension scheme, to invest in private credit via BNP Paribas Asset Management late last year. That fund allocates across infrastructure, commercial real estate and corporate debt and has inspired small UK pension funds to take a similar approach.
To do so, these institutions are looking to overcome obstacles in the form of high manager fees, illiquidity and relatively weak governance.

“In the UK, defined contribution pension schemes are subject to a regulatory fee cap of 75 basis points,” says Thibault Sandret, credit specialist in private markets at Bfinance.

“Not only do private credit funds often charge management fees north of this cap, but they typically charge a performance fee on top. However, recent market developments suggest that some managers are willing to adapt their fee structures to accommodate the requirements of this sizable investor base.”

Sandret says the illiquidity inherent to private debt investments is an issue because there is a general sense that the pension schemes should provide daily liquidity. However, he argues that this is a cultural factor, not a regulatory constraint.

Creditflux
reported in December that BNP Paribas AM is looking to create a similar fund to the one it created for Nest, but catering to small investors. This strategy will pool numerous pension funds, in contrast to Nest’s fund of one.

Another UK pension scheme to launch its first private credit offering is the Border to Coast Pension Partnership, which consists of 12 defined benefit local government pension schemes. The organisation has so far raised £581 million from eight out of its 12 partner pension funds.

Phillip Dawes, BNP Paribas AM’s head of sales for the UK & Ireland, says that for consolidated defined benefit schemes, private credit can provide good risk adjusted returns because they are able to exploit the illiquidity premium via consolidated pots of money.

However, he adds that large defined benefit schemes often have the governance structure to appoint several specialist private credit managers.
Share this article:
“It seems that some managers are willing to adapt their fee structures”
Thibault Sandret,
Credit specialist | Bfinance
Share this report:
Share this report: