Invesco, one of the world’s leading global asset managers, has been appointed by The People’s Pension — the UK’s largest commercial master trust — to manage over £260 million in AAA-rated Collateralised Loan Obligations (CLOs).
This marks a first in the UK pension sector, as no other master trust has previously made a strategic allocation to CLO investments.
AAA-rated CLO tranches offer attractive risk-adjusted returns, diversification, and capital efficiency. Their senior position in the credit structure provides strong capital protection while accessing a wider credit market. This partnership aims to enhance long-term growth and portfolio stability for members, combining direct CLO exposure with Invesco’s AAA CLO ETFs to form 5% of The People’s Pension’s default fixed income allocation.
Earlier this year, People’s Pension appointed Invesco to manage its fixed income portfolio.
Charlotte Vincent, the Co-Head of Fixed Income for People’s Pension, said: “We wanted to diversify our fixed income exposure and offer our members an innovative long-term income generating solution as part of their default investment. We believe Invesco’s ability to access the CLO market through AAA ETFs has made this accessible and offers the transparency, liquidity and investment outcomes we are seeking to achieve. AAA CLOs can be integrated into mainstream fixed income strategies, and we believe delivering these through ETFs, can simplify access. By including CLOs, investors can tap into a broader opportunity set, reducing concentration risk and improving overall portfolio resilience.”
AAA CLO ETFs can benefit DC pension schemes:
Pension schemes are under pressure to improve member outcomes with traditional bond allocations suffering from lower relative yields, duration risk, and higher cross correlations. These circumstances created demand for alternatives that can enhance yield without materially increasing credit or liquidity risk.
CLO AAAs provide a high income generating, AAA rated, floating rate asset class, which is more resilient across market cycles with lower correlation levels to the traditional assets that make up a DC pension scheme’s portfolio.
The global CLO market has nearly tripled in size over the last ten years, standing at approximately $1.4tn. Invesco believes this growth reflects how investors are using them to access actively managed pools of senior loans, which offer attractive income characteristics with robust structural protection.
Operational complexity and a lack of straightforward access may have previously been barriers for DC pension schemes. However, the rise of CLO ETFs, which offer a diversified, low-cost, transparent vehicle backed by institutional quality due diligence and improved reporting standards, are now making it easier for DC schemes to consider these assets as part of their core fixed income allocation.
These ETFs trade on exchanges, providing the daily liquidity DC pensions scheme may need while still enabling easy subsequent investment scalability.
Chris Fagan, Chair of the People’s Pension Investment Committee, said: “The best results for members come from true partnership, which is what People’s Pension and Invesco are demonstrating with this announcement. This combines the strengths of asset managers and pension providers to create solutions that are greater than the sum of their parts.”
Scott Baskind, Head of Global Private Credit at Invesco: “AAA CLO’s offer the widest choice with the highest potential yield, with only an incremental increase in risk levels. Doing this through an ETF structure also offers the investor the flexibility and transparency to make changes without the traditional operational hurdles of accessing CLO’s within a transparent, liquid, and scalable vehicle.
“For pension schemes seeking to strengthen member outcomes in a challenging fixed income environment, CLO AAA ETFs represent a compelling next step in retirement plan innovation.”
Mary Cahani, Head of DC Distribution at Invesco says: “We continue to strive to deliver innovative solutions to our clients, who are always looking for new ways to generate income. We have a creative and client focused mindset and through collaboration across the investment, solutions and DC distribution teams we are excited to have been chosen to be the People’s Pension’s strategic partner for this fixed income ETF allocation.”
Invesco believes the CLO ETF market, which is still in its infancy, has the potential to grow substantially from both traditional and non-traditional institutional investors.
With increasing demand for alternative investment options, that can enhance yield and limit risk, we believe this is a complementary solution to our members’ current fixed income allocations.
