Introduction
UK and European pension funds are displaying an insatiable appetite for so-called secured income assets (SIAs). This demand can be traced back to the early noughties when investing in so-called "long-lease property" became mainstream. Whilst the last decade was characterised by a headlong rush into fixed rate and inflation-linked government bonds to match liabilities, it would seem like the next decade may see at least some of these gilt holdings substituted for SIAs. This could be especially true because maturing pension funds, in need of income to pay benefits, are increasingly embracing cashflow driven investing (CDI). Further demand may come from a rotation out of listed equity markets into private markets as investors recognise that the former hold increased risk if one subscribes to the view that their valuations may have been, and will continue to be, distorted by central bank stimulus policies.
The term SIA has been used to refer to a wide range of different investments so newcomers to the term could be forgiven for being confused about precisely what is meant by SIAs; not least because the term "secured" may be confused by some as implying "guaranteed". In this article, we aim to demystify SIAs by proposing a definition which we hope will be of some use in discussions between trustees, investment consultants and asset managers. Next, we outline why SIAs may be useful for pension funds and some of the considerations for trustees when considering how best to include SIAs in their investment portfolios.
What are secured income assets (SIAs)?
We have noticed a wide array of strategies being described as offering Secured Income. For this reason we prefer a definition which is broad in scope and would encourage investors to dig deeper into individual strategies to determine whether the label of "Secured Income", meets their specific investment objectives;