Border to Coast invests more than £575 Million in Private Credit

Border to Coast Pensions Partnership (“Border to Coast”), one of the largest public sector pension pools in the UK with total assets of c.£46bn, has committed more than half a billion pounds in six Private Credit funds as it continues to provide new investment opportunities for its 11 local government pensions scheme partners.

The six high quality investments are the first Private Credit commitments Border to Coast has made and is part of its £3bn Private Markets programme, which also covers Private Equity and Infrastructure.

Mark Lyon, Head of Internal Management at Border to Coast, said: “Private Credit is a key asset class for our Partner Funds as they seek attractive investment opportunities, income and diversification of risk.

“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.”

Investments are selected using a robust and responsible investment process focusing on investment and operational due diligence.  This process is undertaken by Border to Coast’s internal portfolio management team with support from several service providers. As part of the due diligence process, Border to Coast is developing longer-term relationships with key industry participants to enable Partner Funds to collectively benefit from their investments in Private Markets.

Border to Coast is also leading the industry to improve the integration of ESG factors into Private Markets.  It is working with investment consultant Albourne, which has launched a new Environmental, Social and Governance (ESG) framework for Alternatives (including Private Credit).  This framework is based on the recommended due diligence questions (DDQs) set out by the United Nations-supported Principles for Responsible Investment and covers Policy and Governance; Investment Process and Monitoring; and Reporting.

The Private Credit six investments are:

  • HPS Mezzanine Partners 2019 – $104 million

HPS is an established credit manager with a strong long term track record and the ability to take advantage of market dislocations. This investment is a global mezzanine strategy with a focus on North America and Europe.

  • GSO Capital Opportunities IV – $125 million

GSO is an experienced manager with the scale and expertise to source large and complex transactions. This investment is a global mezzanine strategy with a focus on North America and Europe and includes a commitment to a co-investment sidecar vehicle which serves to reduce the overall fee burden for Border to Coast’s Partner Funds.

  • Ares Capital Europe V – $115 million

Ares has the largest private credit team in Europe and extensive long-term relationships with borrowers, facilitating repeat business. The manager has a strong long-term track record and low loss rates. This investment is a European direct lending strategy focused on mid-market companies.

  • Fortress Credit Opportunities V – $100 million

Fortress is a specialist credit manager focused on opportunistic investments with stressed and distressed companies in North America and Europe. The manager is expected to benefit from current uncertain market conditions but has also demonstrated an ability to deploy capital in a more benign environment.

  • Barings Europe Private Loan Fund III – £95 million

Barings has a strong long-term track record and low loss rates. The manager tends to invest in lower risk sectors with lower than industry average leverage ratios. This investment is a European direct lending strategy focused on mid-market companies.

  • Churchill Middle Market Senior Loan Fund IV – $160 million

Churchill is a credit manager with a long-standing market presence and strong reputation. The manager has a robust origination and underwriting platform with a focus on defensive industries and downside protection. This investment is a North American direct lending strategy focused on mid-market companies.

These commitments provide exposure to several of Border to Coast’s targeted themes within Private Credit, including a focus on Senior Debt; Manager Track Record; and, Stressed and Distressed companies.

The Private Markets programme was launched by Border to Coast in May 2019 to capture the key benefits of pooling for its LGPS Partner Funds. This includes economies of scale, increased resources for due diligence, and access to a wider range of investments, including co-investments.  The aim is to enhance risk-adjusted, net of fees, returns from Private Market investments over the long term.

Commitments to Private Credit were received from eight Partner Funds – Bedfordshire, Durham, East Riding, North Yorkshire, South Yorkshire, Surrey, Tyne & Wear, and Warwickshire.