BlackRock has launched the UK Strategic Alternative Income Fund, which provides UK defined benefit (DB) pension schemes with access to a range of alternative income sources in one portfolio.
The fund arrives at a time when pension schemes are increasingly seeking alternative income, as yields from traditional asset classes remain scarce.
A survey conducted in December 2015 of BlackRock’s largest institutional clients, representing USD6.6 trillion, found that private markets look set to prosper in 2016. More than half (53 per cent) intended to increase their allocation to real assets and 47 per cent intended to increase their allocation to real estate this year.
Andrew Stephens, head of intermediated clients for the UK, says: “UK pension schemes are increasingly embracing less liquid strategies to enhance returns, but these types of investments are not often easy to exploit. By creating a single portfolio that provides exposure to a range of alternative income sources we are helping schemes access these markets more easily while also providing diversification. BlackRock has a wealth of expertise across all of these markets, making us ideally placed to offer this solution to clients.”
The fund aims to deliver long term stable cash flows and targets a net annual yield of five per cent over the investment horizon. These cash flows have explicit and implicit linkage to inflation and are sourced from investments across infrastructure debt, renewable energy, real estate debt, long lease property and direct lending in the UK. The fund will access these markets through a mixture of funds, bespoke mandates and direct transactions.
Stephens adds: “The strong asset returns we’ve seen since 2009 haven’t fed through to improved funding levels for defined benefit pension schemes and forward looking returns from public markets alone won’t meet their objectives. With many schemes’ recovery plans being in excess of 10 years, the illiquidity premia that schemes can source from private markets are compelling and UK pension schemes, with their long investment horizons, are ideally positioned to benefit. When coupled with BlackRock’s unique ability to originate attractive investments, we expect demand for this offering to come from schemes of all sizes, who invariably find it harder to access private markets directly.”
The fund is semi-open ended and investors are provided with windows of liquidity every year following an initial four-year lock-in. There are guidelines to allocations across the underlying asset classes within the portfolio and the managers will observe prudent levels of diversification. The allocation guidelines are flexible, allowing the managers to take advantage of opportunities to deploy capital as they present themselves.