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A UK pension fund has said it is \u201cdifficult to figure out\u201d how natural capital investments fit into portfolios and warned that the returns are relatively unattractive in a high interest rate environment.<\/p>\n
Peter Smith, investment director at TPT Investment Management, told Edelman Smithfield\u2019s investor summit this month that while the asset class was attractive from a non-financial perspective, the risk-return made it difficult to fit natural capital into portfolios.<\/p>\n
TPT IM is the investing arm of TPT Retirement Solutions, an \u00a311.1 billion ($14.7 billion; \u20ac12.5 billion) UK pension fund.<\/p>\n
Smith said natural capital is \u201crelatively low-returning\u201d. \u201cIt\u2019s high single digits and you\u2019re looking to lock your capital up for 15-20 years. In an environment where you can buy a high-yield bond and get 8 percent or more, it\u2019s not that attractive. When rates are on the floor it\u2019s potentially a different argument.<\/p>\n
\u201cUnless you have a specific [non-financial] requirement or stakeholders, I think at the moment it\u2019s quite difficult to figure out how this fits into the portfolio.\u201d<\/p>\n
Tony Dalwood, CEO of Gresham House, told the summit that \u201cmaking money\u201d is always the focus with allocations. \u201cAs long as it fits in a portfolio, adds to portfolio characteristics and makes the right amount of return, you then go to the additionality around carbon sequestration, etc,\u201d he added.<\/p>\n
Dalwood said the UK\u2019s largest forestry manager was struggling to gain traction among Australian pension funds due to the country\u2019s rules around performance benchmarking under the Your Future, Your Super regime<\/a>.<\/p>\n The \u20ac10.1 billion investor has \u201cfound some Aussie supers that are thinking outside the box\u201d but Dalwood said this is \u201ca real problem\u201d.<\/p>\n However, Canadian and some US pension investors are more progressive in investing in natural capital assets. Canada is \u201cwell ahead\u201d of allocations in the space, he added.<\/p>\n LGPS momentum<\/p>\n Gresham House secured its first commitment from an Australian super fund this month when NGS Super anchored its \u20ac250 million international forestry strategy alongside Worcestershire Pension Fund.<\/p>\n Other local government pension schemes have been active in the asset class as well.<\/p>\n