Schroders has won a mandate to invest £500mn of Welsh pension fund cash into private companies, as part of a broader plan by the UK’s largest listed asset manager to expand its private markets business.
The FTSE 100 fund group, led by chief executive Peter Harrison, will run the private equity mandate for the Wales Pension Partnership, which represents eight local government pension schemes in the country.
Schroders will manage the £500mn as a separate pot of money on behalf of the pension schemes and will invest it across global industries from healthcare to technology.
Private equity has traditionally been a costly asset class for local pension schemes, but more asset managers have been offering access in recent years with increasingly cost-efficient funds.
The latest development comes as Schroders plans on expanding its private investments business in an attempt to continue diversifying the group beyond its traditional offering of retail and institutional equity and bond funds.
Schroders combined its private assets businesses in 2021, ranging from private equity to real estate and infrastructure, under a new brand, Schroders Capital, with some £46bn of assets at launch.
Harrison said at the time the new division, which now manages £72.3bn, was a core part of “delivering on its growth strategy”.
Stuart Duncan, analyst at Peel Hunt, said: “Flows over the past year or two have gone into private assets. As a diverse fund group, Schroders will increasingly focus on that. Last year private assets were strong, while volatile markets meant retail and institutional segments had a tougher time.
“Private assets investments are also stickier, which is good for fee income over the longer term.”
However, some analysts have raised questions about the asset manager’s ambitions for expanding its private assets business.
David McCann, an analyst at Numis, said: “The strategy to transition to a different mix is logical but we think it will take a long time and is risky.”
Schroders Capital has secured other sizeable mandates in recent years. The London-based manager was appointed by Nest, the UK’s largest workplace pension scheme, last year to manage its private equity allocation. Nest expects to have at least £1.5bn invested in private equity by early 2025.
Tim Creed, head of private equity at Schroders, said at the time that the asset class had “been accessible only to large defined benefit schemes” to date. Schroders said it made co-investments, alongside other third-party funds, making it easier to invest.
Schroders was appointed last year to manage €100mn of private assets focused on sustainable investments for German insurer Barmenia. The Greater Manchester pension fund also gave Schroders a mandate to manage £700mn of real estate assets in 2021, across sectors such as retail and hotels.
Chris Moore, a director at Carmarthenshire county council, part of the Wales Pension Partnership, said private equity had been “an important holding” for local authorities and had “historically been challenging to access”.