Fixed income interview: Border to Coast with bonds

Border to Coast, a £45 billion pension fund pool, recently appointed Pimco to manage a multi-credit fund. Daniel Booth, CIO at the scheme, discusses the fund’s bond allocation with Nick Fitzpatrick.

The Border to Coast Pensions Partnership, one of the largest public sector pension pools in the UK, has appointed Pimco as the core manager for its multi-asset credit fund, expected to be launched in early 2021.

The £45 billion (€53 billion) pension pool – made up of 12 UK local authorities from South Yorkshire to Surrey – has also launched a search for investment managers for four asset class mandates covering high yield bonds, leveraged loans, emerging market debt and securitised credit.

Border to Coast’s multi-asset credit [‘MAC’] strategy will target cash plus 3% to 4% a year through a diversified portfolio of high yield bonds, leveraged loans, securitised credit and more.

“As global bond yields have fallen, many institutional investors – our partner funds included – have reviewed their fixed income portfolios,” says chief investment officer Daniel Booth, speaking to Funds Europe about the role the multi-asset credit fund will play.

“This has typically involved diversifying their traditional exposure to government bonds and investment grade credit with allocations to higher-returning – and higher-risk – fixed income assets such as high yield bonds or emerging market debt.

Daniel_Booth“The Border to Coast MAC Fund aims to provide our partner funds with access to a broad range of these higher-yielding assets in a single, scalable fund. The partner funds will typically complement allocations to MAC with investments in other Border to Coast fixed income strategies such as index-linked gilts [due to launch later in 2020] and sterling investment grade credit [launching in the first half of 2020]. Making an investment in the MAC fund gives partner funds increased income while providing attractive diversifying characteristics, relative to their growth assets such as equities.”

Do you have any other more vanilla fixed income investments and what role are they playing?
Our partner funds have different investment strategies, which in some cases include exposure to gilts (nominal and index-linked) and investment grade credit. We are launching an index-linked gilt fund and investment grade credit fund for partner funds in 2020. Our partner funds are open defined benefit schemes with long-duration inflation-sensitive liabilities.

Consequently, high-quality fixed income is typically seen more as a means of diversification and source of income than the explicit liability hedges seen in closed corporate schemes.

Is this the first time the fund has entered some of these assets, such as securitised debt? Did you find it hard to enter these assets, given any regulatory constraints, perhaps?
As a newly established investing organisation, this will be the first Border to Coast investment in these asset classes. However, many of our partner funds currently have exposure to all or some of these through existing collective vehicles. Some assets in the portfolio will require additional regulatory or operational work from an implementation perspective and we are working hard with our external partners (e.g. depositary, administrators, asset managers, etc) to ensure that this is properly addressed prior to the launch of the fund.

Are large mandate sizes, achieved through pooling, better for making these kinds of investments?
Many of the partner funds gained exposure to these asset classes pre-pooling through collective fund investments. We believe that the additional scale arising from pooling and the increased investment resources provided by Border to Coast will result in lower and more efficient exposure as well as superior diversification across a range of more difficult-to-access credit assets.

Would you consider private debt?
Not for our Border to Coast MAC fund – we have a dedicated private credit strategy where this will be more appropriate.

Once this entire allocation is implemented, what will be the asset mix?
Asset allocation varies by partner fund but typically starts from a high equity allocation relative to corporate schemes. The direction of travel is increasingly towards diversification through MAC, other fixed income assets and private market investments. However, as an open pension scheme, LGPS remains committed to both its statutory objectives of maintaining stable and affordable contributions for employers and members.

© 2020 funds europe



Innovative US companies are providing some of the solutions to the climate crisis and transition to a more sustainable economy. We see potential opportunities in areas including renewable energy and…
This white paper outlines key challenges impeding the growth of private markets and explores how technological innovation can provide solutions to unlock access to private market funds for a growing…


Visit our dedicated Ireland channel for all the latest news and analysis on the country's investment industry.