Clara chief executive Simon True and VLK Investment Management UK chief executive officer Andre Keijsers
Clara is set to move around a third of its assets under management into private markets in a bid to boost risk-adjusted returns and support the government’s productive markets agenda.
The £1.5bn superfund said it currently has a low single-digit amount of assets in private markets but planned to increase this allocation to between 30% and 35%, initially through investments in direct lending and private credit but potentially also considering assets such as working capital finance, infrastructure debt and real estate debt in the future.
Clara said it hoped to support the government's productive finance agenda with the move – noting it expected around half of its private market assets to be invested in the UK over time.
It said its fiduciary manager, Van Lanschot Kempen Investment Management (VLK), would create a Luxembourg-based vehicle to run the private market investments – investing in a pool of private market managers, including both preferred managers and legacy private market assets inherited from schemes that transfer to Clara.
Clara said this structure meant that pension schemes joining the superfund would not need to divest any private markets holdings they already have and they can be rolled into Clara at an agreed valuation.
Clara chief executive Simon True said the superfund had always looked to target appropriate risk-adjusted returns to support members benefits – noting a key part of that plan was to include a substantial allocation to private market assets and productive finance.
He added Clara's first three transactions – its deal with the £590m Sears Retail Pension Scheme in November 2023, its PPF+ transaction with the trustees of the £600m Debenhams Retirement Scheme in March 2024 and its deal with the £210m Wates Pension Fund last November – had given it the scale to think about how to put this private markets plan in place.
True said: "We have worked very closely with the VLK team over the last few months about the best way forward and concluded that having a private markets vehicle specifically set up to support Clara's sections was the best way forward.
"By doing this, we can put 35% of our assets in these more illiquid asset buckets, where we're comfortable with the risk-adjusted concern and can spread risk across all of our sections. It gives us the benefit of scale, diversifies risk and it allows new schemes who come in to inject their liquid assets, appropriately priced, into the vehicle."
True noted that by spreading the risk across all of Clara's sections, it also allows the superfund to invest for the longer term.
He explained: "Typically a section is with us between five and ten years. But with this structure we can invest in things like infrastructure debt, commercial real estate debt – things that are a lot longer term, possibly up to 35 years in time horizon. But we can do that safely – we're not going to be sellers when those sections go to buyout, because we can recycle those assets with both existing and incoming schemes."
Clara said it hoped to build up to the 35% level over a two to three year period, with new schemes joining Clara increasing their allocation to private markets over a similar period.
True said Clara had a strong belief that investing in private markets would improve risk-adjusted returns going forward.
He said: "We believe strongly that you are rewarded in certain areas for illiquidity; you're also rewarded, in some cases, for having that ability to take a long term view; and you're also rewarded for understanding esoteric risk. But you have to be at scale to be able to do that, and we have to have an investment partner like VLK to help navigate that."
True said the secondary driver to the move was to help schemes with illiquid assets to find a solution that doesn't necessarily involve them selling them at deep discounts.
He said: "Pension schemes who are forced to sell their assets at a discount does not seem to me to be in the best interests of members so trying to preserve that value in our ecosystem is a very useful secondary driver."
VLK Investment Management UK chief executive officer Andre Keijsers agreed the importance of having a longer-term view – citing the example of direct lending as an asset class which had a high ability to achieve return targets but one where a longer-term commitment was needed.
Keijsers explained: "This is one of the ways Clara can help. Clara's scale, plus its own longevity and time horizon allows schemes to benefit from these sort of asset classes."
He said a scheme operating on its own would find such investments much more difficult to invest in that Clara. He explained: "Clara is able to recycle the longer duration assets with its other schemes."
Consolidation benefits
Clara's move into private markets comes as Nest said it planned to invest up to 30% of its portfolio in private markets by 2030 and the Pension Protection Fund vowed to invest more in ‘juicy' UK assets such as infrastructure and scale-up companies if allowed to grow.
It also comes ahead of the government's Pension Schemes Bill, which could include a specific framework for superfunds.
True says if the government follows through on legislation for superfunds and gets this legislation right, the industry could see several more superfunds deploying into UK private markets at a similar scale to Clara, which he expected to have upwards of £10bn in assets under management by the end of this parliament. He noted that such consolidation and scale could also deliver massive benefits to members.
He added: "I want a pensions bill that is supportive to superfunds, and that we don't backtrack on the hard progress we've made over the last few years."
