USS staffs up to hunt for direct investments

The £60bn UK pension fund, whose allocations to timber and agri total nearly half a billion pounds, believes it can deliver 'superior after-cost risk-adjusted returns’ by going direct.

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The £60bn UK pension fund, whose allocations to timber and agri total nearly half a billion pounds, believes it can deliver ‘superior after-cost risk-adjusted returns’ by going direct.

USS Investment Management, the investing arm of the UK’s Universities Superannuation Scheme, has hired three investment professionals as it pursues its “continuing shift towards direct investments”, the firm said on Monday.

The additions to the USS direct team include Craig McAllister, who joins as investment manager for real assets and whose career includes stints at Whitehelm Capital, Macquarie Capital and Charles River Associates; Bob Hewson, who previously spent a decade at UK mid-market firm Alchemy Partners and will focus on executing direct private equity investments at USS; and Rob Brindley, an infrastructure veteran and the former head of strategic asset finance at Commerzbank, who joins as investment manager for private credit and special situations.

The group, which manages assets for the £62.5 billion (€70 billion; $83 billion) pension scheme, has a £250 million allocation to timber and £200 million earmarked for agriculture. It has also created the role of head of direct private equity and appointed eight-year USS veteran Rob Horsnall to it. Horsnall, a former 3i executive, has led a number of infrastructure and private equity transactions for USS, including motorway services business Moto, Heathrow Airport and NATS, the air traffic control business.

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“I‘m delighted to lead USS’s strategy to invest in direct, low risk private equity assets,” said Horsnall. “The flexibility of investment approach and philosophy at USS has enabled us to acquire businesses that do not neatly fit within traditional asset classes but are fundamentally attractive investments, well suited to a long-term asset owner like USS.”

No one at the pension was available to comment on how far the pension is looking to go as it tilts away from fund investments and towards direct activity, but Mike Powell, who heads up the team, said the pension believes “the in-house team can deliver superior after-cost risk-adjusted returns, and bring additional benefits for our members in terms of alignment of interests and greater governance over our investments.”

“Complementary to our direct program,” he continued, “USS will continue to be a significant limited partner working closely with our general partners to support the breadth of our private markets investment program.”

The pension has 23.2 percent of its assets invested in private markets, according to its 2017 annual reports and accounts. Its private markets team comprises 40 people investing in private equity, real assets, property, private credit and special situations.