Universities Superannuation Scheme Investment Management, which runs the £34.2 billion ($54.7 billion) USS, will invest about £100 million in 25-year, inflation-linked debt of South East Water, said Gavin Merchant, the pension fund's senior investment manager for infrastructure.
It's the pension fund's first infrastructure debt investment and is part of a strategy to expand its infrastructure portfolio, which is about 2.7% of the fund. The long-term target is 7% of total assets in “a blend of debt and equity,” Mr. Merchant said.
USS, London, has been steadily increasing its exposure to infrastructure by reducing its developed markets equities allocation to “provide some extra diversification and modestly reduce the asset-liability mismatch risk,” according to the pension fund's annual report for the year ended March 31.
“Clearly the opportunity set in the U.K. is the biggest issuers, which tend to be the utility companies,” Mr. Merchant said. “We've spent a significant amount of time building strong relationships with a number of these companies. We're very much focused on forming long-term partnerships.”