People’s Pension: A strategic UK partnership leveraging our CLO expertise

HOW PEOPLE’S PENSION ARE USING CLOs TO BUILD A MORE RESILIENT PORTFOLIO

Scott Baskind, Head of Global Private Credit, Invesco

I’d like to introduce Charlotte Vincent from People’s Pension.

One of the conversations we’ve been involved in is around the collateralised loan market – CLOs – and the opportunity they present within fixed income allocation, particularly when thinking about shifting into components that can add alpha to the portfolio.

I’d love your perspective on how and why CLOs, particularly AAA CLOs at the top of the liability structure, have become an interesting component in how you’ve thought about future‑proofing the portfolio and solving some of those challenges.

Charlotte Vincent, Co‑Head of Fixed Income, People’s Pension

My job is actually very simple. I have to get the best outcomes for our members by creating the best fixed income portfolio I can.

When you’re looking at a fixed income portfolio, you’re trying to solve for a number of different scenarios, and what you really want are levers. I want the ability to adjust regional exposure. Our focus is UK pension schemes, but we also invest in euros, dollars, and a small allocation to emerging markets.

Then there’s duration – do I want something long‑dated or short‑dated? That’s another lever. And then there’s fixed versus floating rate.

Prior to our most recent investment in CLOs, we were 100% fixed rate, which removed one of those levers. So my first focus was finding something that would give us optionality by adding floating rate exposure, and AAA CLOs were the most obvious answer.

We weren’t looking to change our risk profile, so we focused on the AAA tranches. They’ve never had a default – through the GFC, through every crisis – and they remain incredibly highly rated.

They add diversification by providing floating rate exposure, access to a wide range of managers, exposure to different pools of underlying loan collateral, and diversification across vintages. I’m not sure there’s another product that ticks so many boxes – actually, every box I require. It’s a fantastic solution for what we were trying to achieve.

Scott Baskind

That’s a great point. One of the ways we often see investors use AAA CLOs is as a comparison or complement to investment‑grade corporate bonds and other asset‑backed securities.

As you’ve thought about balancing longer‑duration fixed rate exposure with shorter‑duration floating rate exposure – which AAA CLOs clearly provide – how have you approached that from an allocation perspective?

Charlotte Vincent

That balance really depends on time and place. Right now, we’re in a rate environment that looks like it’s moving towards lower rates, where you’re comfortable holding more fixed rate exposure. In a different environment, one that favours rising rates, it might make more sense to hold more floating rate exposure.

But there’s something you mentioned that I’d like to pick up on. AAA CLOs typically trade at a premium to investment‑grade credit – often referred to as a complexity premium. Why do they pay that premium, and do you think it could narrow as the asset class becomes better understood?

Scott Baskind

It’s a great question, and it reflects how the market has evolved. CLOs have existed for more than three decades and now exceed a trillion dollars in the US market, with several hundred billion in Europe. They’ve become a mature, well‑known asset class.

One key difference versus traditional structured credit is documentation. CLO transactions tend to be more heavily negotiated, so each deal looks slightly different. That non‑standard documentation has historically led investors to demand a documentation or complexity premium.

Liquidity used to be part of that conversation, but it’s much less of a concern today. That’s a real benefit when thinking about CLOs from a relative value perspective, both versus investment‑grade corporates and within the broader asset‑backed universe.

Charlotte Vincent

Another important topic, particularly for those less familiar with CLOs, is structural protection.

Even through the Global Financial Crisis – when almost everything else was impacted – AAA CLOs were not impaired. They’ve never defaulted. That’s a huge selling point, but many people don’t fully understand how that’s been possible.

Could you explain how the CLO structure works, and why we’ve never seen impairment or defaults in the AAA tranches?

Scott Baskind

Securitisations are inherently complex, but at a high level, a CLO consists of assets and liabilities.

On the liability side, you have tranches ranging from AAA and AA down through BBB and BB, with a significant equity cushion beneath them. The AAA tranche typically represents around 60% of the overall structure and benefits from substantial debt and equity subordination.

There has never been a default of a AAA‑rated CLO note. For investors, it can feel like investing in a high‑quality bond, albeit with the added complexity of securitisation.

Documentation is critical. CLOs include structural triggers that redirect cash flows if underlying assets begin to deteriorate. Cash is diverted away from equity and towards amortising the AAA tranches.

This self‑healing mechanism means that as markets become more uncertain, and as defaults or downgrade risk increase, AAA tranches actually become more protected. They amortise more quickly and become a smaller part of the overall structure. That’s the true benefit of the negotiated credit agreements that protect AAA investors and deliver high recoveries with no defaults.

Scott Baskind

Charlotte, as you’ve thought about CLOs within your fixed income allocation, you’ve clearly been solving for long‑term objectives. But partner selection also matters. What differentiated your approach and led you to the outcome you reached?

Charlotte Vincent

I’m not solving for my own problems – I’m solving for the future members. That perspective shapes everything we do.

CLOs are a compelling opportunity, but we’re solving for more than just fixed income. Across People’s Partnership, we believe future risks must include ESG and sustainability considerations. As long‑term investors, we view these as financially material.

What we need from partners is alignment – not someone who simply agrees with us, but someone willing to help solve complex problems.

When working with Invesco’s CLO team, what stood out was the depth of expertise. You have large private markets and leveraged finance teams analysing these credits every day, with coverage across 70 to 80‑plus tradable credits. That includes detailed models, cash flow analysis, and ESG assessment.

That level of insight was essential. But I also wanted more. I asked for closer to 100% coverage rather than 70 or 80%. Instead of pushing back, the response was, “Let’s see how we can solve this together.”

That’s where true partnership lies. Everyone worked as one team, committed to finding the best solution. The outcome was genuinely best‑in‑class, and I don’t believe we could have achieved it elsewhere without that collaborative approach.

Scott Baskind

We greatly appreciate that. From our perspective, the foundation of any partnership is collaboration and transparency.

We’ve had both easy and difficult discussions, but the ability to challenge each other – supported by trust – is what allows us to push boundaries and deliver better outcomes for end clients.

Thank you for the partnership and for sharing your experience today.

Charlotte Vincent

You’re very welcome.