Aegon leverages LTAFs to put climate targets into action

The new strategy will see Aegon's default workplace fund, which manages the retirement savings of 700,000 members, introducing private market allocations and ESG integration to its £12bn Universal Balanced Collection fund.

Aegon has committed to investing £500m into climate solutions over the next two years, as Lorna Blyth, managing director, Investment Proposition, states. “This bold move also aligns with our commitment to reach net-zero greenhouse gas emissions for our full range of default funds by 2050, and to a 50% reduction in emissions by 2030” she stressed.

The Universal Balanced Collection fund is available to Aegon Retirement Choices and One Retirement investors, as well as some off-platform products. One the private markets allocations have been rolled out across the Universal Balanced Collection fund, Aegon plans to make them more widely available with more than £30bn of default assets to be moved to ESG compliant strategies.

“We expect many of these solutions to come from unlisted equities which aligns with our Mansion House Compact aim to invest at least 5% of our default fund assets in unlisted equities by 2030” Blyth added.

“Climate solutions are still poorly defined in the market but we are very proud of our approach of focusing these investments into private assets, and the definition we have applied to ensure that any investments tagged as solutions are actually additive and impactful” stressed her colleague Hilkka Komulainen, head of responsible investment at Aegon UK.

Manager appointments

Aegon has appointed three managers to execute its new private market allocations. BlackRock will manage a bespoke private markets strategy, including private equity, private debt, real estate and infrastructure. It will also manage a fully ESG integrated passive equities and bonds strategy with a year-on-year decarbonisation target, from quarter four 2024.

Aegon Asset Management will manage a new multi asset credit mandate which includes global high yield, asset backed securities and emerging market debt strategies from H2 2024. In addition, they will also manage a private debt and alternative fixed income fund, subject to FCA approval and operational considerations, from early 2025.

Also in early 2025, subject to FCA approval and operational considerations, J.P. Morgan Asset Management will manage a bespoke strategy, offering exposure to private equity, infrastructure and forestry.

UK DC providers have historically slow to embrace private markets, the Mansion House Compact, a 2023 pledge revealed by UK chancellor Jeremy Hunt aimed to turn this around as 11 DC providers pledged to invest at least 5% of their assets in private equity. Aegon is a founding signatory to the compact.

Leveraging LTAFs

Aegon will use the newly created Long-Term Asset (LTAF) fund structure to integrate private market assets into its portfolio. LTAF’s are open-ended pooled funds which are authorised and regulated by the UK’s financial markets watchdog FCA in a bid to facilitate effective allocation to private market assets. The first LTAF was authorised by the FCA last year.

Historically, the 0.75% price cap has been a key obstacle for DC funds considering private market allocations. But UK authorities have now exempted the performance based element of investment management fees from the annual cap, in a bid to make private market investments more accessible to DC funds.

Aegon said that with the new investment strategy, fund’s objective and risk appetite will remain unchanged. While the fund charge is made up of a fixed management fee and additional expenses, the fixed management fee will not change, although an increase to additional expenses was expected.

Another key challenge for DC providers will be the scaling up of their allocations. While DC assets are so far small compared to the defined benefit market, they are on track to grow exponentially due to the effects of automatic enrolment.

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