Cushon has launched a new investment strategy that has a 15 per cent allocation to private markets through Schroders, the biggest in the master trust sector, it says.
The provider says its new strategy, which will launch in early 2022, delivers impact investments across 100 per cent of its portfolio.
The scheme’s trustees are working with Schroders Capital for high impact projects including sustainable infrastructure, clean tech, natural capital, financial inclusion and climate insurance, as well as social and affordable housing. Lombard Odier Investment Managers will manage listed bonds focusing on the most companies that are accelerating towards net zero with the aim of supporting that transition. Wellington will manage listed social impact bonds, and listed equities will be managed by Macquarie to a Cushon custom-designed climate and social impact index created by Solactive.
The investment strategy will invest in wind and solar farms, forestry, battery tech, green hydrogen and social housing.
Cushon says it will engage DC savers with their money through private markets investments in environmental and social impact projects they can feel proud of, citing research showing 62 per cent of employees would engage more if they knew their pension was having a positive impact on climate change.
Cushon’s new strategy aims to increase the potential for greater investment returns by focusing on greener companies which it expects to perform better in the longer term. Cushon’s 200,000 members’ pensions will be invested in environmental projects such as the planting of new sustainable forests and in financing new wind and solar farms. It will reduce risk by improving diversification, ensuring members’ money is safeguarded against lower returns from ‘brown’ (carbon emitting) investments as the global economy transitions to net zero.
Private market investments in both developed and emerging markets are included, offering improved potential returns with markedly reduced investment risk through diversification.
Roger Mattingly, chair of the Cushon Master Trust says: “The changes announced to our investment strategy demonstrate our commitment to sustainability and responsible investment which we believe supports better long-term financial outcomes for our members. We have spent considerable time undertaking due diligence of the investments and fund managers, as well as negotiating costs to ensure that we can include private market investments well within the confines of the charge cap. We are certain the new investment strategy will deliver excellent retirement outcomes for our members.”
Ben Pollard, founder and CEO of Cushon says: “A good number of people will be able to name their pension provider, but a miniscule proportion will be able to name the underlying investments. This passive relationship has become the industry norm, but it’s one of the reasons there is apathy, particularly among younger savers. We need a new approach that places saver engagement at the heart of the pensions industry. That’s why a big focus of our new investment strategy includes, for the first time for the defined contributions market, connecting savers with investments in projects and companies that they can feel proud of and engage with. Our research shows that 62% of employees would engage more if they knew their pension was having a positive impact on climate change.”
Cushon strategic adviser Julius Pursaill says: “Private markets increasingly offer sources of return that listed markets don’t – forestry and micro finance for example, as well as private equity – these give members access to better diversification, higher expected returns and ultimately significantly improved investment outcomes. We will deliver regular updates to members about the positive change their pension savings are delivering for the planet and look forward to announcing novel ways our members will be able to engage with these investments in the coming months.
“We have made this move for four reasons. Firstly listed equities are a lot thinner than they used to be. Take Uber – its growth pre IPO was bigger than post. This shows why you’ve got to look to private markets.
“Secondly, private markets offer diversification – via non correlated assets. Forestry for example, which also delivers a great carbon price hedge. Thirdly, they are brilliant in terms of climate risk. And fourthly, they are a great investment to communicate to members.
“And members are getting it at a great price, with a TER of 15bps for the fund, 15 per cent of which is private markets, and with no performance fees.”
Cushon says that in less than a year it has reduced financed carbon emissions from the underlying investments from 80 per cent of the UK average to below 50 per cent, reducing its reliance on carbon offsetting. Its ultimate goal is eliminating the need for carbon offsetting completely in the near future.
Cushon will be announcing further details of each of the forward-thinking investment approaches for bonds, private markets and listed equity in the coming weeks.