USS staffs up to hunt for ‘low risk’ PE assets

The £60bn UK pension fund believes it can deliver 'superior after-cost risk-adjusted returns’ by going direct.

USS Investment Management, the investing arm of the UK’s Universities Superannuation Scheme, has hired three investment professionals as it pursues its “continuing shift towards direct investments”, the firm said in a statement on Monday.

The group, which manages assets for the £62.5 billion (€70 billion; $83 billion) pension scheme, has also created the role of head of direct private equity and appointed eight-year USS veteran Rob Horsnall to it. Horsnall, a former 3i executive has led a number of infrastructure and private equity transactions for USS, including the motorway services business Moto, Heathrow Airport and NATS, the air traffic control business.

“I‘m delighted to lead USS’s strategy to invest in direct, low risk private equity assets,” said Horsnall. “The flexibility of investment approach and philosophy at USS has enabled us to acquire businesses that do not neatly fit within traditional asset classes but are fundamentally attractive investments, well-suited to a long-term asset owner like USS.”

“The in-house team can deliver superior after-cost risk-adjusted returns.”

Mike Powell

The additions to the USS direct team are Bob Hewson, who previously spent a decade at UK mid-market firm Alchemy Partners; Rob Brindley, an infrastructure veteran and the former head of strategic asset finance at Commerzbank; and Craig McAllister, whose career includes stints at both Macquarie Capital and Charles River Associates.

The pension has 23.2 percent of its assets invested in private markets, according to its 2017 annual reports and accounts. It has 9.2 percent invested in ‘private debt and private equity’.

The USS private markets team comprises 40 people investing in private equity, real assets, property, private credit and special situations. No one at the pension was available to comment on how far the pension is looking to go as it tilts away from fund investments and towards direct activity, but Mike Powell, who heads up the team, said the pension believes “the in-house team can deliver superior after-cost risk-adjusted returns, and bring additional benefits for our members in terms of alignment of interests and greater governance over our investments”.

“Complementary to our direct programme,” he continued in Monday’s statement, “USS will continue to be a significant limited partner working closely with our general partners to support the breadth of our private markets investment programme.”