Legal & General Investment Management (LGIM) has launched a secure income assets fund for UK defined benefit (DB) pension schemes.
The L&G Secure Income Assets Fund has an open-ended pooled structure and is aimed at DB schemes with a long-term horizon. It will provide access to a diversified portfolio of private market securities.
The fund structure is subject to a lock-in period and targets returns of gilts plus 2.5% per annum over a three-year rolling period. Infrastructure debt, real estate debt, and private corporate debt are among the secure income assets within the portfolio.
Five single strategies have also been launched as separate unit-linked life funds, targetting senior real estate debt; investment-grade infrastructure debt; investment-grade private corporate debt; sub-investment-grade infrastructure debt; and sub-investment-grade private corporate debt.
LGIM said the investment in secure income assets under its pooled structure will be particularly relevant to smaller DB schemes that may face more governance hurdles. Smaller schemes are generally likely to fund such asset classes ordinarily out of reach due to higher minimum investment levels and additional governance requirements.
Head of UK institutional clients Mark Johnson said the launch of the funds reflected industry demand for more innovative DB solutions.
He said: "Investing long-term capital in secure income assets offers a compelling opportunity to generate these cashflows with attractive risk-adjusted returns and the potential for long term owners of capital - insurers and pension schemes - to effect real and lasting change."
LGIM Real Assets head of portfolio management private credit Stuart Hitchcock continued: "For investors with a long-term view, secure income assets are a core part of a cashflow-driven investment strategy, delivering a breadth and depth of universe not available in the public market.
"By negotiating better structural protections than public market equivalents, we aim to provide improved downside protection, reduced valuation volatility and lower correlation with traditional traded assets."
LGIM said it had approximately £35.1bn of assets under management as of August 2020.
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