Master trust provider Cushon will be the first investor into Schroders’ new long term asset fund (LTAF) — the first of these new fund vehicles to be launched in the UK.
Cushon will invest 15 per cent of its default fund into this Climate+ LTAF, although it will take up to three years to reach this full allocation.
This LTAF, run by Schroders Capital, will be a global multi-private asset solution with a sustainability remit. The LTAF will invest in private assets that support the transition towards a net zero economy, including private equity, infrastructure, real estate, natural capital and biodiversity-focused assets, including forestry, as well as more liquid investments that also deliver a positive environmental or social impact.
The fund will have a significant UK weighting, with 30 to 50 per cent of assets in the UK and Europe. It will invest across four sustainability themes: climate mitigation, climate adaption, natural capital and social vulnerability.
The LTAF is aiming to deliver net returns of 8 to 10 per cent a year. Schroders said it is expecting other DC schemes to invest in due course.
FCA-approved LTAFs are designed to help DC pensions invest more efficiently in less liquid assets. Schroders said it will operate a robust liquidity management framework with a focus on managing excess cash and investing in more liquid assets.
While this will be an open-ended fund, NAVs will be calculated on a monthly basis and redemptions offered on a quarterly basis. The fund will set a cap on redemptions of 5 per cent of the net asset value of the fund.
Unlike many other infrastructure or private equity funds, this LTAF will not levy a performance fee. Although performance fees are now permitted within a DC framework — and can be excluded from the DC default charge cap — Schroders head of UK institutional defined contribution Tim Horne says he felt at present trustees were more comfortable with a flat fee charging structure.
Schroders said that it would levy a flat fee of 1.25 per cent. Cushon, as a founding investor, is understood to have negotiated a lower charge. This will mean it can hold this fund within its default offering without breaching the current charge cap. Cushon charges a fee of 0.15 per cent on its default.
Schroders Capital has £75bn of assets under management. It says it will utilise the experience of BlueOrchard, the impact investing company it acquired in 2019 to deliver a high impact strategy across the portfolio.
Cushon, which is in the process of being acquired by NatWest, is now the fifth largest master trust by number of members.
Horne adds: “Opportunities for UK DC savers to benefit from the returns private assets can bring have traditionally been very limited. The launch of the Climate+ strategy will enable investors to take advantage of the diversification and performance private asset can deliver, as well as sustained momentum now being director towards the global transition to net zero and free economies.
“It is a testament to our focus on meeting the needs of investors in this space that we have been able to launch this strategy so quickly after receiving regulator approval to launch the UK’s first LTAF.”
Schroders Capital head of private asset solutions David Seex adds: “Climate change is just one of the most pressing issues of our time and private assets have a role to play in financing the Just Transition we must make. Pension savers want the opportunity to participate in tackling this generational change, as well a generate sustainable returns in their retirement pools.
“Climate+ provides a single access point to a diversified multi-private asset portfolio of investments which directly target the adaption to, and mitigation of, climate change.”
Cushon’s strategic adviser Julius Pursaill adds: “This new strategy demonstrates the leading role pensions can play in supporting the move towards net zero and a more sustainable economy. Our research shows that members are far more engaged in their pensions if investments are aligned to their values and greater engagement leads to better outcomes in retirement.
“Pensions can be a force for good for both people and planet – this new strategy is a major leap forward for the industry.”