Climate+ LTAF: Schroders Capital unveils UK’s first Long Term Asset Fund
Schroders Capital, the private markets investment division of Schroders, has launched the UK’s first long-term asset fund.
The Schroders Capital Climate+ LTAF, launched this week, is designed to help UK defined contribution pension funds support the net zero transition.
The asset manager was granted approval to roll out the UK’s first LTAF by the Financial Conduct Authority earlier this month.
UK master trust Cushon is the open-ended vehicle’s founding investor.
The Climate+ LTAF is a diversified multi-private asset fund, which aims to contribute positively to climate change and support the transition towards net zero economies, Schroders said.
It will invest across four long-term themes, namely climate mitigation, climate adaption, biodiversity/natural capital and social vulnerabilities.
The strategy will allocate to infrastructure, real estate, private equity, natural capital and biodiversity-focused assets, via a mix of Schroders Capital and externally-managed funds.
The company will also leverage BlueOrchard’s experience in impact investing, which it acquired in 2019.
Ped Phrompechrut, co-manager of the LTAF, said private equity will be the main return engine for the fund, mostly in small- and mid-cap. Allocation to infrastructure will focus on climate mitigation, while for the natural capital theme, the fund will invest in forestry and carbon capture.
The LTAF’s real estate investment will focus on three main areas, he explained, including workplaces, town centres and affordable housing.
In terms of geographical allocation, Phrompechrut said up to 50 per cent of the fund will be UK and Europe, while up to 25 per cent will be exposed to emerging markets.
On the liquidity side, the fund will have holdings in cash, as well as Article 9 and carbon funds, and will provide periodic redemptions to investors of up to five per cent of total net asset value, after an initial three-year lock-up period.
The LTAF will also provide quarterly dividends and will not charge any performance fees, but it will have a flat fee of 1.25 per cent.
Tim Horne, head of UK institutional DC at Schroders, said private assets opportunities for UK DC savers have traditionally been very limited, but he believes Climate+ can allow them to take advantage of private assets’ performance and returns.
Since pension investing requires a long-term approach, Horne said it is “naturally aligned” with the nature of private assets.
David Seex, head of private assets solutions at Schroders Capital, added that climate change is the “most pressing issue of our time” and private assets have a role to play in financing the ‘Just Transition’, an opportunity that should be available to pension savers.
“Climate+ provides a single access point to a diversified multi-private asset portfolio of investments which directly target the adaption to, and mitigation of, climate change,” he explained.
This article first appeared at Investment Week.
