LGIM launches two US securitised funds for UK DB investors

Written by Dan McGrath

13/09/2024

Legal & General Investment Management (LGIM) has launched two new strategies, which offer professional UK defined benefit pension schemes a range of options for investing in US asset-based securities (ABS).

The proposition, which is also available to all UK institutional investors, is expected to be offered to international investors in due course.

The L&G US securitised fund and the L&G US securitised plus fund are actively managed portfolios investing across US investment grade securitised credit opportunities.

Securitised credit refers to bonds backed by the cashflows from a dedicated pool of financial assets. This could include corporate loans secured by company assets, or bonds backed by specific assets like property, cars, trains and machinery.

Both strategies have been constructed to help schemes build a diverse and more stable liquidity pool.

The securitised fund is focused on a short-duration, high-quality blend of securities with the highest liquidity, seeking to outperform the benchmark set by the secured overnight financing rate.

The plus fund is low duration, with a broader credit risk exposure to generate a higher expected return, which will aim to outperform the Bloomberg US Agg ABS index.

Head of UK, institutional and wholesale, at Legal & General, Mark Johnson, said: "Higher funding levels and the potential to target member benefit uplifts via surplus extraction has meant that many schemes are seeking to balance the ongoing need for funding level stability with a desire to invest for growth in a diversified way over the medium to long term.

"We believe that allocating to US securitised credit could form part of an enhanced liquidity solution, perhaps as a component of a collateral waterfall allocation, supporting an LDI portfolio. It also has the potential to help clients who are looking to target income levels and long-term growth in excess of traditional fixed income assets."

The funds will offer a number of potential benefits of securitised credit to investors, including liquidity, diversification and income generation.

LGIM said that the US securitised market boasts higher traded volumes and a more diverse investor base than its UK and European counterparts.

US securitised credit also seeks to offer diversification from traditional corporate credit risk across several ABS asset classes, while also seeking to offer geographic diversification for UK DB schemes, predominately invested in the domestic market.

Portfolio manager of L&G’s US securitised fund, Michael Russell, and the team based in Chicago, will be responsible for managing the new portfolios.

They will be supported by the research and trading teams, who hold a wealth of US securitised credit experience, having managed securitised strategies for over 15 years.

Russell added: "With the launch of our US securitised funds, we are delighted to be enabling UK schemes to seek to access the liquidity and diversification of the world’s largest market for securitised credit. Our view is that it can richly complement existing strategies targeting yield generation and long-term growth in excess of those historically offered by traditional fixed income assets."

Related Articles