Border to Coast selects managers for £575m private credit roll-out

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Border to Coast, one of the UK’s local government pension pools, has invested in private credit for the first time, choosing six funds for £575m (€667m) in commitments received from eight of its partner pension funds.

The six investments are part of the pool’s £3bn private markets programme, which already covers private equity and infrastructure. Border to Coast has previously said the programme could grow to more than £5bn over the next few years.

“Private credit is a key asset class for our partner funds as they seek attractive investment opportunities, income and diversification of risk,” said Mark Lyon, head of internal management at Border to Coast.

“We are very pleased with the continued deployment of capital within our private markets programme and the completion of our first offering for private credit. As a result of our scale and early engagement, we have been able to generate meaningful fee savings for our partner funds.”

The eight partner funds providing the private credit commitments were the funds for Bedfordshire, Durham, East Riding, North Yorkshire, South Yorkshire, Surrey, Tyne & Wear, and Warwickshire.

The six private credit investments that Border to Coast is making are:

HPS Mezzanine Partners 2019 – $104m (€87m): global mezzanine strategy with a focus on North America and Europe;
GSO Capital Opportunities IV – $125m: global mezzanine strategy with a focus on North America and Europe. Border to Coast said this includes a commitment to a co-investment sidecar vehicle that serves to reduce the overall fee burden for the underlying pension funds;
Ares Capital Europe V – $115m: European direct lending strategy focused on mid-market companies;
Fortress Capital Opportunities V – $100m: specialist credit manager focused on opportunistic investments with stressed and distressed companies in North America and Europe;
Barings Europe III – £95m: European direct lending strategy focused on mid-market companies;
Churchill Middle Market Senior IV – $160m: North American direct lending strategy focused on mid-market companies.

The due diligence process for selecting investments is taken by Border to Coast’s internal portfolio management team with support from several service providers. Border to Coast said that as part of the due diligence process, it is “developing longer-term relationships with key industry participants to enable partner funds to collectively benefit from their investments in private markets”.

The pool is working with investment consultant Albourne to raise standards in private markets related to environmental, social and governance (ESG) investing.

The pension funds served by Border to Coast have total assets of around £46bn.