Amidst a market trend of selling off private asset portfolios, UK pension schemes like the Pension Protection Fund and Border to Coast Pensions Partnership are capitalizing on discounted real estate and private assets, while across the pond, Calpers shifts its investment strategy to focus more on private markets.
UK pension funds are strategically acquiring discounted real estate and private assets, leveraging the current market trend where other retirement funds are offloading such holdings. Notably, the Pension Protection Fund and the Border to Coast Pensions Partnership are actively participating in this market movement. A specific example includes the Pension Protection Fund’s purchase of a property fund share at a 35% discount from another pension fund, with an investment allocation of up to £350 million aimed at exploiting market dislocations.
This activity is spurred by defined benefit pension schemes selling off their private asset portfolios in anticipation of buyouts by insurance companies. This scenario presents an opportune moment for entities like Border to Coast to diversify their portfolios inexpensively. Initially, assets were sold at steep discounts, but increasing interest from pension schemes is causing these discounts to narrow, with some UK property funds now trading at or above their net asset value.
Across the Atlantic, the California Public Employees’ Retirement System (Calpers), the largest public pension plan in the US, plans to shift its investment strategy by increasing its stake in private markets by more than $30 billion while reducing its stock market and bond exposure. This strategic change aims to enhance returns by boosting investments in private equity and private credit from 33% to 40%. This marks a significant move, especially since Calpers had previously paused its private equity program, a decision that potentially cost up to $18 billion in returns. Now, recognizing private equity as offering the highest long-term returns, with a reported 11.8% annualized return, Calpers is looking to increase its private equity allocation from 13% to 17%, and potentially up to 22%. This adjustment also includes a potential increase in ventures into riskier assets like international venture capital, following a reported 10.3% return last year.
These developments demonstrate significant strategic shifts within the pension fund sector, highlighting an adaptive approach to market conditions and investment opportunities both in the UK and the US.
