A pension scheme for retired clergy of a 500-year old Christian institution in England is seeking to boost returns by shifting money into firms that extend private loans to small and medium-sized companies.
The Church of England Pension Board plans to increase its allocations to private credit to 8% over the next 10 years, from 3% at the end of 2017, according to its chief investment officer Pierre Jameson. The pension fund manages £2.6 billion ($3.3 billion) of assets.
It is part of a broader change of tack by the 38,000-member fund toward private investments and away from equity, Mr. Jameson said in an interview.
The strategy is another example of how pension funds are being drawn to private assets as they seek to lift returns and meet payout commitments amid ultra-low interest rates. The asset class is also less sensitive to market volatility, according to Jameson.
"Escaping from price swings is key for U.K. pension schemes given we're required to mark to market," he said. "Private assets' values are based on realistic expectations and cash flows for the underlying businesses so we feel our actuarial assumptions are solid and not vulnerable to market sentiment."
The church's pension scheme aims to slash its public equity allocation to 35% from 66% currently within its "return-seeking assets," which account for 85% of the fund. It will reallocate the proceeds into infrastructure, private debt and private equity. The scheme expects returns of 6% to 8% on its private credit investments, Mr. Jameson said.