Alternative or private credit is an increasingly attractive asset class for defined benefit pension schemes. It generally offers attractive yields relative to publicly quoted debt, steady cash flows and can consist of floating rate loans which may provide resilience if rates rise. With the market growing, it provides a spectrum of credit opportunities and duration profiles that has the potential to increase diversification and reduce volatility for schemes based on the strategies deployed.
The shift from traditional bank lenders as a result of tightening regulation since the global financial crisis, has resulted in the financing gap being filled by capital flows from private credit funds. It is a significant and growing market, driven largely by the search for higher yield. S&P Global reports the AUM of funds principally involved in direct lending grew to $412 billion by the end of 20201.
Typically, alternative credit involves non-bank institutions making loans to private companies. These businesses borrowing in the alternative market are usually mid-market private companies who struggle to access traditional bank finance. However, the expansion of private credit has resulted in a wide range of sub-asset classes covering direct lending, leveraged loans, distressed debt, securitised credit, consumer finance, real estate and infrastructure debt.
Private credit funds must undertake rigorous due diligence before investing, and as lending is privately negotiated, managers will generally seek seniority and stronger covenants. These allow investors to access higher yielding opportunities while mitigating some of the associated risks. The problem for many DB schemes however, particularly small to mid-size ones, is how to access and implement alternative credit funds. Investing requires significant levels of governance, the funds can also be illiquid with unique fund structures, and high minimum investment limits restrict access to only the largest schemes.
Now, Mobius Life has made a range of alternative credit funds available to DB schemes of all sizes on our platform. All the governance is undertaken at the platform level, meaning schemes do not have to jump through numerous governance hoops and cumbersome account opening documentation. Mobius Life takes on the implementation of these illiquid assets to manage the infrequent dealing cycles and valuations.
All implementation is carried out by Mobius Life, as we accommodate the complex dealing terms associated with the asset class.
Many DB schemes and their advisers can see the investment potential offered by alternative credit. Now the opportunity is available to far more schemes, thanks to the scale and flexibility of the Mobius Life platform and the continued investment in our infrastructure. If you want to know more, please get in touch.
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t: + 44 (0)20 7847 3300 f: + 44 (0)20 7847 3399 w: www.mobiuslife.co.uk
Mobius Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales at: 7th Floor, 20 Gresham Street, London, EC2V 7JE. Registered No. 3104978. For your security telephone conversations may be recorded.
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