Fidelity’s FutureWise to target climate solutions through new LTAF
FutureWise, Fidelity International’s £16.9bn default investment strategy for UK-based pension schemes, is set to integrate private assets into its default offering, paving the way for allocations to climate solutions.
FutureWise, the default strategy investing on behalf of Fidelity’s £10bn master trust as well as contract-based schemes, will invest in private markets through a Long-Term Asset Fund (LTAF) structure. This structure is being rolled out over the next three years and will allocate up to 15% of the fund’s overall assets to private markets.
The strategy will be managed by Fidelity International, with the investment team responsible for sourcing general partners (GPs).
Like other LTAFs, up to a third of its assets will remain invested in listed equities to provide liquidity. The remainder will be equally allocated across private equity, private credit, infrastructure, real estate, and natural resources, according to James Monk, investment director for workplace investing at Fidelity, who spoke to Net Zero Investor.
With the fund now venturing into private markets, allocations to energy transition assets will become a key priority. Monk emphasises:
“There are a couple of mega trends that we see as key investment themes: low-cost sustainable living, digital infrastructure and data consumption, low-carbon logistics, clean energy, financial inclusion, and demographic shifts in healthcare. These are some of the mega trends that we see as critical in supporting a sustainable future.”
While LTAFs are, by definition, open-ended to meet the liquidity requirements of defined contribution (DC) investors, Monk argues that some of the most attractive private market opportunities can still be found in closed-ended fund structures. Consequently, the LTAF has been designed with scope to invest in closed-ended funds as well.
“The LTAF itself has an open-ended structure because it has to offer liquidity on an ongoing basis, but what you do underneath that LTAF structure matters. The way you allocate to private markets is incredibly important. We have done extensive research because the diversity of outcomes is much larger than in public markets, and value is driven by quality implementation rather than cost,” Monk explains.
Find out more? James Monk will be speaking on private markets at the NZI DC Forum | Thursday 30 January | Stationer's Hall London | register here
“The way we are looking to allocate in our LTAF solution is by sticking very much to the heartland of private assets. Historically, private markets have predominantly been in closed-ended structures. The flagship strategies that many managers offer are in the closed-ended spectrum. We felt it is important to access those types of structures because that is where the performance is strongest, it is easiest to maintain quality, and we can access sector specialists,” he adds.
The LTAF fund is set to launch early in the new year, with further details on GPs to be confirmed in the coming months.
By venturing into private markets, FutureWise follows in the footsteps of other workplace pension providers such as Aegon, Cushon, L&G, and HSBC’s pension scheme, which are also capitalising on the new LTAF structure.
The Financial Conduct Authority (FCA), the UK’s financial services regulator, authorised the first LTAF last year to ease access to private markets for DC pension providers. Demand for these vehicles has grown steadily, with at least 12 LTAFs authorised by the FCA over the past year, according to law firm Dechert LLP.
