LONDON (Reuters) - The main pension scheme for Britain’s universities is investing in a venture with Credit Suisse CSGN.VX to provide senior debt finance to funds active in the direct-lending market, as pension funds look for new ways to diversify their investments.
The Universities Superannuation Scheme (USS), one of Britain’s biggest pension schemes, has agreed to buy a majority interest in a $3.1 billion portfolio of loans made by Credit Suisse to the funds, underpinned by loans to companies.
“This transaction gives USS exposure to top-tier private credit managers through a high-quality portfolio of loans delivering an attractive risk-adjusted cash flow for the benefit of our members,” said Ben Levenstein, head of private credit and special situations at USS Investment Management.
USS is the main defined benefit pension scheme for British universities and other higher education institutions, with total fund assets of around 56 billion pounds ($70 billion) at end-September.
Direct lending by private equity funds and other credit funds has grown since the financial crisis as banks scaled back their lending to small and medium-sized companies as part of efforts to shore up their balance sheets.
Under the deal, Credit Suisse will retain a minority economic interest in the loan portfolio and also get a fee for providing services such as credit monitoring, structuring and the origination of new financing facilities to newly formed entities set up USS to manage the portfolio.
Credit Suisse said it expected to originate new loans to direct lending funds from the first half of 2017, which could be included in the venture. It also said it expected demand from other investors to invest alongside USS.
“Credit Suisse anticipates that other institutional investors will seek to join this collaboration with USS, providing the asset managers with access to a diversified pool of long-term institutional capital. These new institutional investors will have the same opportunity as USS to acquire services from Credit Suisse.
Editing by Maiya Keidan and Mark Potter