LGPS Central has launched a new sterling investment grade credit fund with a seed investment of £650m (€779m) from West Midlands Pension Fund (WMPF), with the potential for further commitments from other partner funds in the future.
The fund was developed in response to discussions with WMPF as part of its strategic asset allocation review and an increased appetite for sterling-based corporate bonds.
LGPS Central said the fund, which is structured as a sub-fund within its Authorised Contractual Scheme (ACS), provides partner funds with a durable investment option tailored to withstand market cycles while delivering reliable cash flows and steady returns.
It added that the strategy emphasises a low turnover, “buy and maintain” approach, designed to benefit from LGPS Central’s ACS pooled vehicle, which provides cost efficiencies, flexibility, and liquidity for public market investments.
The fund will concentrate on sterling-denominated, investment-grade credit with global exposure, including corporate bonds, securitised credit, hybrids, and covered bonds, it said.
Furthermore, while benchmark-agnostic, the fund aims to hold at least 60% in sterling investment-grade credit, ensuring both diversity and a portfolio of robust high-quality credit.
The ‘buy and maintain’ strategy aim is to hold securities until maturity with the expectation of reinvestment, trading only when significant value can be added, preserving the fund’s low turnover and predictability, providing a predictable cash flow if income is required, LGPS Central explained.
Ann-Marie Patterson, investment director for fixed income at LGPS Central, said: “Through a rigorous development process, this fund aims to withstand various credit cycles and deliver consistent performance.”
Patterson added that the strategy focuses on constructing a portfolio with low default risk, emphasising sectors with high asset backing and resilience to disruption.
L&G Asset Management has been selected to manage the fund, following a thorough procurement process.
James Sparshott, head of strategic clients at L&G Asset Management, said: “We are seeing a significant increase in demand for ‘buy and maintain’ from our LGPS clients, often with a focus on delivering stable credit market returns with low risk and cashflow provision.”
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