There continues to be potential for pension capital appearing where bank lending no longer wants to go. Commentators in the UK and continental Europe have heightened expectations that pension funds will step in to help fill the continent’s bank financing gap. Societe Generale, for instance, recently predicted further “disintermediation” by investors sidestepping banks and looking for greater seniority than bond holding. Over in the US, the news that average yields on high-yield debt have fallen below 5 per cent for the first time, according to the Barclays US High Yield Index, could also give added impetus to funds exploring the higher reaches of the capital structure.
The consultant call
David Bennett, head of investment consulting at Redington, says his consultancy is advocating moves into direct lending investments in the majority of its asset allocation reviews for institutional clients. He argues that the relative value appears quite strong: “The general trend in credit spreads has been considerable tightening, and there are not as many opportunities any more in high-yield or investment grade debt to make the returns that funds need.”
Bennett is confident that the area of direct lending will progress from its relatively exotic status to something more mainstream in time. “Provided a fund has capacity for investments in illiquid assets, there seems to be considerable interest as the asset class offers exceptionally attractive risk-adjusted returns,” he reckons.
Click here to read the full article by Dan Billingham which appeared in on 15 May 2013.

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Author: David Bennett

David was Redington’s Head of Investment Consulting from 2013-2018 and was recently promoted to the Executive Board. He also Chairs Redington’s Investment Strategy Committee. David is the lead consultant to a range of full advisory clients and also works on ad hoc projects for Trustee and Sponsor-side clients, as well as having oversight responsibility for some clients. His clients include: Fenner, Anglian Water, EDF, Smiths Group, Heathrow, Xerox and Taylor Wimpey. As Chair of our Investment Strategy Committee, David is very familiar with all of the strategies in which the Fund is invested. David joined Redington after twenty-four years at Goldman Sachs, where he had a number of roles. Most recently, David worked in Goldman Sachs’s Pensions and Insurance Strategy Group, where he advised UK pension funds and insurance companies. He was also a Trustee of the Goldman Sachs Defined Benefit pension fund. David has an actuarial background from his time as a trainee actuary at Commercial Union, and studied Mathematics at Cambridge University.