June 2021 | Issue 235
Managers offer solutions for underfunded pensions
Michelle D'Souza headshot
Michelle D’souza
Credit managers are tapping UK defined benefit pensions that are battling negative cashflows.
The latest examples include BlackRock, which held a $940 million first close on BlackRock Diversified Private Debt Fund; MV Credit and Loomis Sayles’ open-ended offering MV Dual Credit Fund; and Tikehau Capital and DWS’s strategy dubbed DWS Secured Income Fund.
Simon Males, who leads Tikehau’s UK institutional business, says two thirds of the 5,200 corporate defined benefit UK pensions are cash-flow negative (contributions made are less than payments going out).
“That cash-flow negativity is marked in terms of the percentage, but the trend is also going one way,” he says. It is estimated that 90% of pensions will be facing the issue by the end of the decade.
“Around 60% of income will be returned within five years”
Shalin Bhagwan, Head of pensions advisory | DWS
As a result, pension funds are seeking stable, secure income streams.
DWS Secured Income Fund will invest across direct lending (70%), infra debt, real estate debt, CLOs and ABS with cash flows that align with those of pensions to help bridge the funding gap over the next five to 10 years, according to Shalin Bhagwan, head of pensions advisory at DWS.
The DWS/Tikehau fund has a £500 million ($707 million) target and £750 million hard cap. It will target a roughly 5% net IRR. Around 60% of income will be returned within five years and all cash will be returned in eight years, says Bhagwan.
In addition, the strategy differs from regular private credit funds in that it will take 100% of cash from investors on day one. “Private credit managers often have capital call processes that occur at short notice and could happen five or six times in a two-year period,” says Bhagwan.
To facilitate deployment, the fund will invest in tradeable credit to begin with and transition to private credit over two years.
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Global credit funds & CLO's
June 2021 | Issue 235
Published in London & New York.
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