The Lancashire County Pension Fund and the London Pensions Fund Authority have pooled £1.3bn of their existing credit investments into the Local Pension Partnership (LPP).
The assets will now be invested through a new credit fund, which will target long-term investment returns from a variety of credit-linked assets, offering "cost-effective" exposure to "diverse sources" of return linked to global credit markets and credit instruments.
It will be managed by the pool's Financial Conduct Authority-authorised alternative investment manager, LPP Investments.
The pool's chief executive Susan Martin said: "At a time of continuing volatility in the global markets, the new fund can help investors achieve superior performance while mitigating downside risk.
"It also provides another example of how collaboration can benefit our shareholder funds by delivering not only sustainable long-term investment outcomes, but also cost savings through manager consolidation and an enhanced internal investment capability."
The fund seeks to maximise risk-adjusted returns from exposure to credit instruments through access to best-in class investment strategies, capitalising on illiquidity premia and other technical factors in the global credit markets. The aim is to deliver superior performance throughout the investment cycle.
The fund is the fourth to be launched by the LPP in the past year, following the £1.5bn global infrastructure fund in June, a £1.8bn private equity fund in March and the £5bn global equity fund launched in November 2016.
The pool said that additional launches are planned over the coming months, with fixed income and total return in the pipeline.
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