The Smart Pension Master Trust has allocated £100m of its default assets to seed a blended private market illiquids fund being launched by Natixis Investment Managers.
The master trust - which currently has around £1.2bn of assets in its default fund - said it expected this fund to make up 10% of its default portfolio over time and was making the allocation by selling down a passive bond exposure from its old strategic asset allocation.
It said there would be no increase in its annual management charge as a result of this shift, which will remain at 30 basis points per annum for asset management. The scheme's administration charge, which varies between clients, will also remain unchanged.
Natixis IM's newly developed MV Dual Credit Fund will blend strategies from two of its specialist affiliates, MV Credit and Loomis Sayles - aiming to deliver a solution that will give schemes enough liquidity to meet its needs, while still allowing them access to private market credit.
The £100m investment by Smart Pension will go through MV credit into Loomis Sayles' global multi-asset credit strategy. It will then be diversified over time into MV Credit's European leveraged loans strategy to an optimal allocation of 50:50.
The European leveraged loans portfolio will largely be made up of senior debt instruments, but will also include a small amount (5% to 10%) in subordinated debt.
The MV Dual Credit fund will be seeded with around £100m of assets from the Smart Pension default fund but, while the master trust is the cornerstone investor, the fund will also be accessible to other UK schemes.
Smart Pension UK managing director Paul Bucksey said the development of the MV Dual Credit Fund would help open up illiquid investments to mass market DC in an "accessible and affordable" way.
He said: "We believe this should improve returns and reduce volatility for members of the master trust and is part of our overall plan to ensure that our default investment strategy delivers really great outcomes for our members."
The move comes as part of a longer-term strategy by the Smart Pension Master Trust to develop and diversify its default fund in order to meet member needs both now and in the future.
Bucksey added: "We have recently tilted our default growth fund to be more focussed on responsible investing, and we are excited that this next phase of development incorporates access to private markets in what will be a first for a private sector master trust in the UK."
Smart Pension director of policy and communication Darren Philp added that Smart had been working with Natixis IM for over a year to develop the offering and work out how it could start incorporating illiquids into its default offering - praising the collaborative approach adopted to solve the challenges around the launch and drive the solution forward.
He said: "Through our teamwork with Natixis IM we have been able to develop a solution, which will meet the needs of both the trustees and the needs of our members."
Natixis IM head of UK defined contribution (DC) sales and strategy Nick Groom added: "We are delighted to be involved with Smart Pension in building one of the very first private market solutions for the DC market. The fund incorporates two of our specialist affiliates - MV Credit for structuring the fund and access to private credit, and Loomis Sayles - to provide the liquidity through its multi-asset credit strategy."
Groom added that putting a fund of this sort together had not been straightforward - noting that it had required significant amount of effort to ensure this structure was available on the life platforms used by DC schemes.
He said: "Bringing liquid and illiquid credit together into one open-ended affordable solution for the UK DC pensions market was the objective, and we believe that this innovative strategy is what the market is looking for. We are pleased to work with Smart Pension and its platform partners, L&G, to see the strategy go live."
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