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Alternative Market Briefing

US Pensions go all in on alternative credit

Thursday, October 11, 2018

Bailey McCann, Opalesque New York:

A new white paper from credit hedge fund Gapstow Capital Partners looks at how US pension plans are investing in the alternative credit universe. The paper includes an analysis of 915 individual credit investments for 40 US public pension funds, having collective assets of over $1 trillion. Gapstow's definition of alternative credit includes long-only strategies, credit hedge funds, direct lending, distressed debt, and multi-strategy mandates.

US public pensions are the largest providers of capital to the alternative credit industry and according to Gapstow, pension's relationships with investment consultants and subsequent allocation decisions reflect the most current investor thinking on the opportunity set in alternative credit.

US pension plans that were included in the analysis had to have both an allocation to some form of alternative credit, a strategic allocation policy and a schedule of investments that are available to the public. Gapstow then identified all credit-related holdings and categorized them into one of the 15 alternative credit sub-strategies to create a representative sample of US pension plan allocations.

Of the sample, alternative credit accounts for 7% of pension portfolios. Typically, pensions will split their overall credit portfolio including traditional credit strategies and alternative credit 70/30. Notably, despite representing on average only 30% of an overall credit portfolio, pensio......................

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